People walk outside a store along the Magnificent Mile shopping district on March 15, 2023 in Chicago, Illinois.
Scott Olson | Getty Images
Household spending is expected to fall sharply over the next year, according to a survey by the New York Federal Reserve released on Monday, reflecting unfavorable consumer sentiment as well as a potential slowdown in inflation.
The central bank’s survey of consumer expectations for April showed the outlook for spending fell by half a percentage point to an annual rate of 5.2%, the lowest level since September 2021.
This was accompanied by a corresponding drop in the overall inflation outlook for next year by 0.3 percentage points. Respondents expect an inflation rate of around 4.4% over the next 12 months, still well above the three-year outlook of 2.9% and the five-year outlook of 2.6%.
All of these levels are still above the Fed’s 2% inflation target, although they are moving closer to the target.
The results of the survey come less than a week later The Fed has approved its tenth rate hike in a row from March 2022. This brought the benchmark fed funds rate into a target range of 5-5.25%, the highest level since August 2007.
Along with the rate hike, Fed officials indicated that this month’s increase could be the last for some time as they assess the impact of all previous monetary policy tightening.
Consumers expect gas prices to rise 5.1% next year, up half a point from the March survey. Food prices are expected to increase by 5.8%, which is a 0.1 percentage point decrease compared to the previous month. The outlook for higher education costs fell sharply to an expected increase of 7.8%, down 1.1 percentage points from March.
The median outlook for earnings growth remained unchanged at 3%, even as the outlook for employment worsened. The probability that the unemployment rate will be higher year-over-year from now on increased to 41.8%, an increase of 1.1 percentage points. The Unemployment rate for April fell to 3.4% on Fridaylowest since May 1969.
Elsewhere in the survey, the annual outlook for home price appreciation rose to 2.5%, the most since July 2022 and up 0.7 percentage points from March.
