People walk in front of a store in the Magnificent Mile shopping district in Chicago, Illinois on March 15, 2023.
Scott Olson | Getty Images
Household spending is expected to fall significantly next year, according to a survey by the New York Federal Reserve released on Monday. This reflects poor consumer sentiment and a possible slowdown in inflation.
The central bank’s survey of consumer expectations for April showed the spending outlook slipped half a percentage point to an annualized rate of 5.2%, the lowest since September 2021.
This was accompanied by a corresponding fall of 0.3 percentage point in the headline outlook for inflation next year. Respondents expect inflation to be around 4.4% over the next 12 months, still well above the three-year forecast of 2.9% and the five-year forecast of 2.6%.
All of these readings are still above the Fed’s inflation target of 2%, although approaching the target.
The results of the survey come less than a week after the Fed approved its tenth straight rate hike since March 2022. This put the Federal Reserve interest rate within a target range of 5% to 5.25%, the highest level since August 2007.
Along with the rate hike, Fed officials have hinted that this month’s hike could be the last for a while as they gauge the impact of all previous monetary tightening.
Consumers expect gas prices to rise 5.1% next year, up half a percentage point from the March survey. Food prices are expected to increase by 5.8%, down 0.1 percentage point from the previous month. The outlook for tuition costs fell sharply, falling to an expected 7.8% increase, down 1.1 percentage points from March.
The median outlook for earnings growth was unchanged at 3%, although the jobs outlook deteriorated. The probability that the unemployment rate will be higher in a year’s time rose to 41.8%, up 1.1 percentage points. The April unemployment rate fell to 3.4% on Friday, the lowest since May 1969.
Elsewhere in the survey, the one-year forecast for house price growth rose to 2.5%, the highest since July 2022 and a 0.7 percentage point increase from March.