More U.S. households say they are better off now than a year ago.
Stabilizing trade policy appears to have alleviated U.S. consumers’ concerns over inflation and the labor market, according to data from the New York Federal Reserve.
Following President Donald Trump’s April 2 tariffs announcement that upended international trade, business and consumer confidence surrounding prices, employment, and the broader economy deteriorated. However, a significant trade deal with the United Kingdom and a 90-day tariff pause with China may have assuaged these concerns.
According to the New York Fed’s May Survey of Consumer Expectations, the one-year inflation outlook declined to a three-month low of 3.2 percent in May from 3.6 percent in April.
Three- and five-year expectations dipped to 3 percent and 2.6 percent, respectively.
Across the U.S. marketplace, consumers are anticipating slower price gains in college, gasoline, medical care, and rent. However, over the next year, they expect food prices to increase by 5.5 percent, the highest rate since October 2023.
Americans are more confident about the labor market outlook in the year ahead.
The mean probability that the unemployment rate will be higher one year from now dropped below 41 percent from 44 percent. Respondents’ expectations of losing their job in the next 12 months also tumbled below 15 percent.
Additionally, the one-year earnings growth projections increased to 2.7 percent from 2.5 percent.
Expected growth in household income edged up to 2.7 percent, below the trailing 12-month average of 3 percent. Household spending expectations slid to 5 percent, slightly above the trailing 12-month average of 4.9 percent.
Last month, the U.S. economy added a better-than-expected 139,000 new jobs, and the unemployment rate held steady at 4.2 percent for the third consecutive month. Hourly wages also climbed at a higher-than-expected pace of 0.4 percent in May.
Meanwhile, more households believe their current financial situation has improved compared to a year ago and expect to be better off next year.
Optimism Gradually Returns
Various consumer surveys have revealed renewed but incremental optimism about the U.S. economy.
The revised May Consumer Sentiment Index by the University of Michigan was adjusted sharply higher because of developments in global trade.
By Andrew Moran
