Consumer spending plans drop amid pessimism over wages, Fed says

JAN 12, 201612:16 AM

[NEW YORK] US consumers reduced their expectations for spending over the next year to the weakest since at least mid-2013 as they grew more pessimistic about prospects for wage growth, a Federal Reserve Bank of New York survey showed.

The median respondent in the New York Fed's December Survey of Consumer Expectations predicted household spending would rise 2.9 per cent over the next year, marking the most tepid outlook in records going back to June 2013.

In December, the median respondent saw earnings growing 2 per cent over the next year, down from 2.5 per cent in November and the lowest level since May 2014. The monthly drop in expected earnings growth was largest in the survey's history. Median expected household income growth over the next year was 2.3 per cent, the lowest since July 2014.

The data release follows a Dec. 15-16 meeting at which Fed Chair Janet Yellen and her colleagues on the policy-setting Federal Open Market Committee raised the benchmark federal funds rate from near zero, where it had been held since December 2008.

Expected inflation one year ahead fell to a new survey low of 2.5 per cent in December, while expected inflation three years ahead rebounded to 2.8 per cent, from November's low of 2.7 per cent.

BLOOMBERG