Households Turn Gloomy on Incomes

US consumers expect household incomes to lag inflation over the coming year, according to the January Survey of Consumer Expectations from the New York Federal Reserve Bank of New York.

The monthly survey found median inflation expectations for the year ahead stood at 5%, unchanged on the December figure. However, the median expected household income was expected to rise by 3.3%. That figure was down by 1.3 per centage points since January.

The New York Fed described the change as ‘the largest one month drop in the nearly ten-year history of the series.’

The fall marks a change in direction for households’ financial confidence. More households reported feeling better off than a year ago, but at the same time more expected to be worse off in 12 months time.

The drop in income expectations came alongside a further drop in the expected growth in household spending. The median expectation was for household spending to rise by 5.7%, down from 5.9% in December and the third monthly fall in a row. This figure, however, remains above inflation and even further ahead of household income expectations.

Credit appears to be one way households expect to square the circle. The proportion of households reporting that credit was easier to access than in December rose and more household said they expected credit to be easier to obtain one year from now.

Meanwhile, the survey may also provide grounds for slightly more caution from lenders, as the perceived probability of missing a debt payment in the next three months crept slightly higher to 12.1% from 11.4% in December.

The Survey of Consumer Expectations is carried out by the New York Fed’s Center for Microeconomic Data and is based on an online survey of about 1,300 US households.