Consumers More Optimistic to Close Out 2023

Consumers were more optimistic about inflation in the near future, according to the latest data from the NYFED.

• Median inflation expectations at the one-year ahead horizon fell to 3.0% in December, down from 3.4% in November and at the lowest level since January 2021.

• Median inflation expectations fell to 2.6% from 3.0% at the three-year ahead horizon, and to 2.5% from 2.7% at the five-year ahead horizon.

Home Prices. Median home price growth expectations remained unchanged at 3.0%, remaining well above the series 12-month trailing average of 2.4%.

Labor Market. Mean unemployment expectations—or the mean probability that the U.S. unemployment rate will be higher one year from now—decreased by 1.4 percentage points to 37.0% in December which is now below the series 12-month trailing average of 39.5%.

More Optimism. Perceptions about households’ current financial situations improved with fewer respondents reporting being worse off than a year ago. While median expected growth in household income decreased by 0.1 percentage point. It did, however, fall to 3.0% which means consumers believe wages will keep pace with inflation (based on their expectations of 3.0% inflation).

Credit Climbs. Total consumer credit rose to just over $5 trillion for the first time on record, according to a release from the Federal Reserve.

• Total consumer credit was up 5.7% year-over-year in November, up from the 1.4% increase in October and the biggest jump since November 2022.

BOTTOM LINE: Consumers are feeling better about inflation which translates into a better feeling about the economy. This could explain why consumers felt confident enough to add more debt to close out 2023.