Americans Were Feeling Really Optimistic About the Economy — Then the Trade War Got Worse

Consumers today have a mostly rosy view of the economy, according to a report released Monday by the Federal Reserve Bank of New York.

In its April Survey of Consumer Expectations, which polled about 1,300 heads of household on their expectations for price changes in food, gas, housing and education, the bank found that respondents forecast low overall inflation, steady employment and an uptick in spending for the next year.

When the survey was conducted, trade talks between China and the U.S. appeared to be progressing toward a deal; however, last week, the Trump administration changed tack and raised tariffs from 10% to 25% on $200 billion in Chinese imports and ordered additional levies on approximately $300 billion worth of goods — including footwear — that were left out of earlier negotiations. On Monday, China retaliated with new tariffs of 5% to 25% on $60 billion of American goods, sending global financial markets into a tailspin.

Here’s what the New York Fed reported:

  • Inflation expectations for the coming year fell to their lowest level since late 2017, dropping to 2.6%, from 2.8% in the March survey. Looking forward to the next three years, the outlook also declined from 2.9% to 2.7%. Despite the strength of the economy, prices haven’t increased at the 2% rate targeted by the U.S. Federal Reserve (in March, they rose only an annualized 1.5%, according to the personal-consumption expenditures price index). Fed Chairman Jerome Powell has warned that downward pressure on inflation could “make it harder for us to react to downturns and harder for us to support the economy in difficult times.”
  • Households anticipate increasing their spending in the next year. Spending growth expectations increased to 3.3% in April, from 3.1% in March, but the New York Fed said that seasonality could be a factor. The Commerce Department found that consumer spending picked up in March, growing 0.9% after several tepid months.
  • Median expected income growth also increased from 2.8% in March to 2.9% in April, though expectations of earnings growth a year from now fell from 2.6% to 2.4%, with households with incomes below $50,000 forecasting the steepest declines.
  • As the labor market continues its hot streak, Americans are feeling secure in their jobs. The average perceived probability of losing one’s job in the next year fell to 13.6% in April, from 14.3% in March. The average perceived probability of finding a job if that happened, meanwhile, ticked up to 59.3%, from 58.6% last month.

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