Hooray! The Fed's Survey Says "Consumers Express Continued Optimism"

by Mish Shedlock, Mish Talk:

I like to read the Fed's monthly survey of consumers because hardly anyone else does, including the top Fed officials.

The Federal Reserve Bank of New York’s Center for Microeconomic Data released the January 2018 Survey of Consumer Expectations on Monday.

According to the Fed, the survey shows "continued improvement in expectations about households’ year-ahead financial situation and credit availability, and robust expected earnings growth. Short- and medium-term inflation expectations fell slightly."

Consumers expect to make 2% to 3% more next year than they did last year. To the Fed, this qualifies as "continued optimism" even though inflation expectations trend lower.

Inflation Expectations

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Robust Earnings Growth

The Fed says consumers expect "robust earnings growth".

Robust Defined

By my calculation, consumers expect their purchasing power to decline between 3 and 59 basis points depending on whether one measures by the median point expected or the median point predicted.

The Fed might call this robust but I believe the Fed failed to ask consumers if they agreed with the Fed's definition.

Spending Projections

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Each month, I download the spending projections to produce my own chart.

  • The median spending percentile projection declined from 2.89% to 2.85%.
  • The 25th percentile projection declined from 0.84% to 0.29%.
  • Hooray! the 75th percentile spending projection jumped from 6.47% to 8.08%.

Consumer Sentiment

Downtrends are clear in all of the categories.

Amusingly, the Fed does not believe its own survey. Instead, former Fed Chair Janet Yellen frequently cited the Consumer Conference Board and the University of Michigan surveys as a purveyor of good news for consumer spending.

The Fed would rather extrapolate various feel good measures than pay attention to its own survey.

Inflation Expectations Nonsense

The idea that inflation expectations matter is ridiculous except in cases of extremely high inflation or hyperinflation.

In Venezuela, people will spend every cent they get as fast as they get it, assuming of course there is anything to buy.

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