U.S. consumers are feeling more optimistic about their earnings and job prospects but are increasingly unsure about what rising inflation might mean for them in the future, according to the results of a monthly survey from the New York Federal Reserve Bank.
While consumer expectations of losing a job or of seeing the country’s unemployment rate go up fell to the lowest levels in at least the eight years the survey has been around, uncertainty about where inflation might be headed rose sharply in May. The median expectation of the inflation rate over the next year rose to 4.0% from 3.4% in April, but the uncertainty over the rate—which gauges how much of a consensus there is—was as high as it’s been in those eight years, matching levels seen in May 2020, early on in the pandemic.
The results underscore a shifting labor market—where workers are gaining an advantage over employers as the economy rebounds—as well as an unusual set of circumstances driving inflation.
The number of job openings and the number of people who quit their jobs both hit record highs at the end of April while layoffs fell to a record low, according to Bureau of Labor Statistics data that dates back to 2000. To fill those openings and hold on to the workers they have, many employers are raising wages. Indeed, respondents to the NY Fed survey expected their earnings to grow a median of 2.5% in the coming year, up from 2.1% in April and the most since the pandemic began.
At the same time, inflation is on the rise as the economy reopens, creating more demand than supply. Amid a shortage of workers and raw materials, businesses are struggling to keep up with a resurgence in consumer demand and are passing their rising supply and labor costs on to consumers. Double-digit price jumps in used cars, airline tickets, and clothes contributed to a 5% inflation rate in May, the highest year-over-year increase since August 2008.
While the Federal Reserve has attributed the higher inflation to many temporary factors, the central bank has acknowledged it may soon be forced to at least consider taking steps to control it. The Fed‘s Federal Open Market Committee, which has aimed for inflation that’s “moderately above” its 2% target to allow the economy to rebuild, meets this week and will be providing an update on its thinking Wednesday.
The NY Fed’s survey results, released Monday, are based on a nationally representative, internet-based survey of about 1,300 heads of household. Respondents participate in the panel on a rotating basis for up to 12 months.
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