The Survey of Shopper Expectations: A Look Again on the Previous Decade

Olivier Armantier, Gizem Koşar, Giorgio Topa, and Wilbert van der Klaauw

It has been a bit of over ten years since we began releasing findings from the Federal Reserve Financial institution of New York’s Survey of Shopper Expectations (SCE). On this publish, we evaluation among the headline findings from the primary decade of the survey’s historical past, highlighting the evolution of shoppers’ expectations about inflation and labor market outcomes. 

A New Method to Monitoring Shopper Expectations 

The SCE is a nationally consultant, internet-based month-to-month survey of a rotating panel of about 1,300 family heads in america. The survey collects well timed, high-frequency details about client expectations for a broad vary of macroeconomic and private financial outcomes.  

The survey was the end result of a six-year improvement venture, the main focus of which was to look at current measures of inflation expectations and suggest extra quantitative different measures. Along with inflation expectations, our goal was to seize shoppers’ diploma of uncertainty about future inflation and elicit their expectations about many different financial outcomes. This improvement and testing section concerned best-practice survey design approaches, together with collaborations with famend psychologists on cognitive interviews and follow-up surveys, and the pretesting of survey questions utilizing randomized survey-based experiments. One other vital design part of the SCE is its rotating panel construction—whereby every respondent stays within the panel for twelve months and a share of respondents rotate out of the panel every month, being changed by new respondents. This design permits researchers to check how particular person shoppers revise their expectations over time. 

Over the previous decade, the SCE has expanded significantly in scope. Every month, the “core” questionnaire elicits expectations from a secure panel of shoppers on a broad number of macroeconomic and private matters, masking outcomes resembling inflation, unemployment, house value adjustments, credit score availability, particular person wage development, the probability of shedding or discovering a job, family spending, and revenue development. In 2014, we began reporting findings from two particular survey modules, on housing and credit score entry, fielded at annual and triannual frequency, respectively. In 2017, we launched the SCE labor market module, adopted in 2019 by the family spending and public coverage modules, all fielded at a triannual frequency with sequence typically courting again to 2014 or 2015. Over the previous ten years, now we have additionally requested a variety of particular questions on well timed matters (associated, as an example, to the Reasonably priced Care Act, CARES Act stimulus funds, and the 2022 spike in gasoline costs) and performed survey subject experiments to enhance our understanding of how people type and replace expectations, and the way these in flip have an effect on their conduct. 

A singular characteristic of our survey is using a probabilistic query format, which asks respondents to evaluate the “% probability” of a given occasion occurring. For outcomes that may tackle a variety of values (resembling inflation or house costs), this entails asking respondents for his or her full subjective “density forecast”—that’s, the chance they assign to, say, inflation falling into every of a pre-determined set of bins. We then measure uncertainty by the diploma of dispersion in every particular person’s density forecast. Our earlier work, in keeping with an in depth literature on the subject, has proven the feasibility and advantages of this format, yielding solutions that seize beliefs in a approach that’s comparable throughout respondents. With respect to inflation expectations, one other vital facet of the SCE is that it was designed to ask respondents their beliefs in regards to the brief (one 12 months forward) and medium (three years forward) phrases, with the latter measure capturing inflation expectations for the twelve-month interval beginning two years from right now. 

Over time, the completely different parts of the survey have confirmed to be extremely beneficial for monitoring and analyzing a variety of client beliefs and conduct. On this publish, we spotlight two areas of focus for the reason that onset of the COVID-19 pandemic: expectations relating to inflation and wage development. 

Inflation Expectations 

As proven within the chart beneath, for the primary seven years of the SCE we noticed little motion in inflation expectations and uncertainty at each the one- and three-year horizons. This all modified in the course of the pandemic. The surge in precise inflation that began in spring 2021 was accompanied by a pointy rise in inflation expectations on the one-year horizon and, to a lesser extent, on the three-year horizon. This divergence between short- and medium-term inflation expectations sparked curiosity within the actions of longer-term expectations. Because of this, in January 2022 we started asking about inflation expectations on the five-year horizon as properly.  

Median one-year-ahead inflation expectations reached a excessive of 6.8 % in June 2022 and have since been trending downward, whereas median three-year-ahead inflation expectations confirmed a extra muted enhance, peaking at 4.2 % in October 2021. The truth that three-year-ahead inflation expectations peaked decrease and began to drop properly earlier than one-year-ahead inflation expectations was a transparent indication that customers anticipated that a lot of the rise in inflation wouldn’t persist. This discovering was additionally mirrored within the relative stability of median five-year-ahead inflation expectations and was in keeping with experimental proof collected at numerous factors throughout 2021 indicating that longer-term inflation expectations remained properly anchored throughout this era, as measured by their sensitivity to shocks in present inflation ranges.  

Whereas median inflation expectations at the moment are basically again to their pre-pandemic ranges, inflation uncertainty, which equally displayed a considerable enhance throughout 2020-21, has been slower to fall again to pre-COVID ranges in any respect three horizons and stays considerably elevated, with shoppers persevering with to assign the next common probability to each deflation and to inflation above 4 %. 

2021 Surge in Inflation Sparks Rise in Brief-Time period Inflation Expectations 

Supply: New York Fed Survey of Shopper Expectations.
Observe: The vertical line denotes the beginning of the pandemic. 

Labor Market Expectations 

One other part of our core month-to-month survey is the elicitation of labor market expectations, together with expectations about on-the-job earnings development and the perceived dangers of layoff and quitting. Like inflation expectations, earnings development expectations ought to have an effect on shoppers’ inter-temporal choices (consuming now versus consuming later, as an example) and are subsequently of nice worth for understanding and forecasting financial conduct.  

As proven within the lefthand panel of the chart beneath, median year-ahead earnings development expectations have been comparatively secure at about 2.5 % till the onset of the pandemic within the spring of 2020, after we noticed a short lived drop, adopted by an increase to about 3.0 % by early 2022. When distinguishing respondents by their stage of earnings, we noticed the next stage and greater enhance within the median anticipated wage development for respondents with above-median ($48,000) annual earnings. This contrasts with what truly occurred, as earnings development amongst employees with below-median annual earnings turned out to be bigger between early 2021 and mid-2022. Since mid-2022, median anticipated earnings development has been comparatively secure at 3.0 %, with a slight decline to 2.8 % by the tip of 2023. Additionally proven within the panel are the twenty fifth and seventy fifth percentiles of the distribution of earnings development expectations throughout respondents. Whereas the previous has remained fixed by means of your entire ten-year interval at 1 %, the latter reveals largely parallel actions to these for the median.  

The righthand panel within the chart beneath reveals a contrasting sample for earnings development uncertainty, which has remained comparatively secure over the previous ten years, solely displaying a gradual and chronic enhance following the beginning of the pandemic. Right this moment, wage development uncertainty stays considerably above pre-COVID ranges. Our evaluation reveals that that is pushed primarily by respondents who’re beneath age 40 and people with an annual family revenue of lower than $50,000.  

After an Preliminary Fall, Earnings Progress Expectations Rise in the course of the Pandemic 

Supply: New York Fed Survey of Shopper Expectations.
Observe: The vertical line denotes the beginning of the pandemic. 

Lastly, we look at developments in layoff and stop expectations, measured as the typical % probability a respondent assigns to the potential for being laid off and to the potential for quitting her or his job voluntarily. Common year-ahead layoff chances, proven within the chart beneath, declined considerably in the course of the mid-2010s, after which they stabilized within the 13.5-14.5 % vary. Because the pandemic hit, common job loss chances initially surged to 21 %, however then fell steadily to ranges properly beneath people who prevailed earlier than the pandemic, reaching 10.4 % in April 2022 and 13.4 % in December 2023. Common stop chances as a substitute dropped sharply on the onset of the recession, then rebounded to ranges just under people who prevailed pre-pandemic. A comparability to the timing and magnitude of the soar in precise layoffs spotlights the surprising nature of the pandemic-induced recession, displaying that the surge in layoffs initially of the pandemic was clearly unanticipated. Of comparable curiosity is the comparatively modest enhance in the course of the 2021-22 interval in stop expectations, in comparison with the a lot bigger “nice resignation” wave recorded within the Job Openings and Labor Turnover Survey by the Bureau of Labor Statistics. This means that many quits throughout this era seem to have been unplanned and spontaneous.   

Layoff Expectations Soar with the Onset of the Pandemic, then Steadily Decline 

Supply: New York Fed Survey of Shopper Expectations.
Notes: The vertical line denotes the beginning of the pandemic. The stable pink and blue strains present the three-month transferring averages of the 2 sequence.  

Summing Up 

On this publish, we analyzed the dynamics of inflation and labor market expectations as an example the breadth and depth of data collected within the SCE. Over the previous decade, SCE information have yielded insights on a bunch of different matters, together with adjustments in experiences and expectations relating to credit score entry, how individuals discover jobs, why employees seek for new jobs, anticipated and precise impacts of stimulus checks on spending, saving and debt paydown in the course of the pandemic, how individuals view housing as an funding, polarization of beliefs round elections, use of buy-now-pay-later loans, and borrower expectations for the return of pupil mortgage compensation. An vital facet of the SCE is that we make our information accessible at no cost. Along with informing the general public, the media, and policymakers, these information releases have additionally been cited in additional than 170 tutorial analysis papers that develop novel insights on a wide range of matters. We’re trying ahead to the following decade of month-to-month SCE updates and path-breaking analyses. 

Olivier Armantier is the top of Shopper Conduct Research within the Federal Reserve Financial institution of New York’s Analysis and Statistics Group. 

Gizem Kosar is a analysis economist in Shopper Conduct Research within the Federal Reserve Financial institution of New York’s Analysis and Statistics Group.

Giorgio Topa is an financial analysis advisor in Labor and Product Market Research within the Federal Reserve Financial institution of New York’s Analysis and Statistics Group.

Wilbert van der Klaauw is the financial analysis advisor for Family and Public Coverage Analysis within the Federal Reserve Financial institution of New York’s Analysis and Statistics Group.

How one can cite this publish:
Olivier Armantier, Gizem Koşar, Giorgio Topa, and Wilbert van der Klaauw, “The Survey of Shopper Expectations: A Look Again on the Previous Decade,” Federal Reserve Financial institution of New York Liberty Avenue Economics, April 16, 2024, https://libertystreeteconomics.newyorkfed.org/2024/04/the-survey-of-consumer-expectations-a-look-back-at-the-past-decade/.