For an increasing number of United States consumers, the economic outlook appears brighter this year. Or so it seems, depending on the indicators considered.
The New York Federal Reserve’s Survey of Consumer Expectations, which polled 1,300 heads of U.S. households in January and was released February 12, found most Americans see “improvements in … perceptions and expectations of their financial conditions and credit availability,” based primarily on inflation rates and home prices.
Consumer optimism
While most survey respondents say they expect short- and long-term inflation rates and median home prices to remain stagnant in the coming months, most believe their “current financial situations improved in January” and that they are “better off than a year ago.”
Additionally, the new survey determined nearly 77% of respondents expect to be financially the same or “better off” this year. This marks the highest percentage of consumers saying this since September 2021. Meanwhile, nearly 38% believe U.S. stock prices will climb during the next 12 months (the highest level since April 2022). Those concerned about job losses in 2024 dropped by 1.6 percentage points to 11.8%.
These upbeat findings mirror some of the same sentiments PYMNTS Intelligence found in compiling its recently-released report, “New Reality Check: The Paycheck-to-Paycheck Report: The Pessimism About Pay Rises Offsets the Effect of Falling Inflation,” which surveyed 4,380 U.S. consumers in December 2023.
Like the New York Federal Reserve’s survey, the Paycheck-to-Paycheck Report reflected some reasons for growing consumer optimism. For one, 60% of consumers say they now live paycheck to paycheck, down from 64% one year ago. While 44% of high-income consumers say they are living paycheck to paycheck, that percentage marks a significant drop from December 2022, when 51% of high-income respondents said the same.
Meanwhile, 58% of respondents told PYMNTS they expect to end 2024 with increased savings. This may help explain why 39% of respondents say they are optimistic about their future financial situations.
One more promising sign: 38% of respondents told PYMNTS Intelligence they expect a wage increase at least on par with inflation in the new year. Roughly one-quarter project stagnant or decreasing wages.
A disconnect
Worth noting: PYMNTS Intelligence found that even though nearly 4 in 10 respondents say they expect a bump in their wages this year, actual wage increases have dropped year over year across most demographics and business sectors. In other words, there appears to be a disconnect between how some consumers perceive their financial situations and actual economic conditions.
This disconnect is visible in more than just the December PYMNTS Report. The January edition of our Consumer Inflation Sentiment series, “Consumers Shop Secondhand Stores as Often as Other Retail,” identified a similar divide:
“[The] disconnect between the recent inflation dynamic and consumers’ expectations hints that their perception of ‘normal’ appears to be correlated with the affordability of prices rather than the Bureau of Labor Statistics data.”
This “affordability of prices” may have influenced the “tempered optimism” that most consumers expressed in the December PYMNTS report. While respondents acknowledge many positives dotting the current economic landscape, they also expressed concerns about what lies ahead.
Eighty-three percent of consumers told PYMNTS they are somewhat uneasy about current and near-future economic conditions. Also, 60% say they simply lack optimism. Forty-two percent expect interest rates on loans to increase this year. And many anticipate a tougher job market — so much so that most are toning down any hopes for near-term wage growth. Meanwhile, 1 in 5 paycheck-to-paycheck consumers predict a decrease in savings in 2024.
Lower affordability begets more strategy
Overall, most consumers anticipate increased savings. One reason that other consumers anticipate saving less this year could be the abovementioned concerns about the “affordability of prices.”
In “The Cautious Spender: US Consumers Now Think First, Spend Second,” PYMNTS Intelligence data from last month showed that nearly 60% of consumers expect prices to climb this year. Though that represents a drop from Fall 2023, which hovered near 70%, the new data reveals that most consumers still anticipate higher prices. As a result, more than half say they are careful to pre-plan most or all purchases before shopping, suggesting that “consumers are more strategic with spending their money.”
Anticipated price hikes may explain why the Paycheck-to-Paycheck Report reflects a simmering sense of anxiety that partially eclipses the more upbeat findings in the Federal Reserve Bank of New York’s survey.
“Consumers report feeling somewhat better about their current finances,” reads the PYMNTS study, “yet few say they are more optimistic about the future as a result.”
One explanation for this lack of optimism might be that the Federal Reserve’s survey focused its questions on inflation, stock markets and the risk of job loss. Meanwhile, the December PYMNTS survey zeroed in on factors such as the potential for stagnant wages, rising interest rates and reduced savings — topics that can trigger anxiety and potentially color consumers’ perceptions.
