William C Dudley: Opening remarks at the Economic Press Briefing
on the Survey of Consumer Expectations
Opening remarks by Mr William C Dudley, President and Chief Executive Officer of the Federal
Reserve Bank of New York, at the Economic Press Briefing on the Survey of Consumer
Expectations, Federal Reserve Bank of New York, New York City, 18 November 2016.
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Good morning, and welcome to the New York Fed's Economic Press Briefing. I am pleased to
have the opportunity to speak with you today about our Survey of Consumer Expectations. This
is an important source of information that we use in our analysis of current and future economic
conditions to help inform our monetary policy decisions. As always, what I have to say reflects
my own views and not necessarily those of the Federal Open Market Committee or the Federal
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Reserve System.
In pursuing its monetary policy objectives, the Federal Reserve relies on a large number of data
sources that provide information about recent developments and the current state of the
economy. Most of these data sources are backward looking. That is, they provide data about
past decisions and outcomes. In contrast, we know relatively little about the forward-looking
subjective expectations and intentions of economic agents, which are a key determinant of
current and future outcomes. This information, though, is essential for formulating policy and
evaluating its effectiveness. The macroeconomic outcomes we observe reflect preferences and
constraints, as well as beliefs of individual consumers and firms. Therefore, a fuller
understanding of such outcomes requires reliable data on the beliefs and intentions held by
economic agents and how they evolve over time. In particular, consumer expectations influence
a variety of considerations, including spending and saving behavior, wage dynamics, job search,
housing demand and the demand for credit. Given their importance in determining U.S.
economic activity, consumer expectations are of particular value in assessing the economic
outlook and the related risks.
Over the last decade, we have devoted significant resources to improving the measurement of
the economic expectations of households. This work culminated in the creation of the Survey of
Consumer Expectations, or SCE, in 2013. The expectations data collected in our survey give us
direct insight into households' decision-making and consumers' financial and economic outlooks.
While we monitor expectations on a number of topics, of particular importance are households'
medium-term inflation expectations. Having reliable measures of inflation expectations is crucial
to assess the effectiveness of monetary policy and central bank communications. Such an
assessment focuses on analyzing the extent to which longer-run inflation expectations remain
well-anchored, and on learning more about how agents update and revise their expectations in
response to new information. The SCE allows us to carry out this sort of analysis.
Besides their obvious policy relevance, the SCE data are also highly valuable for research. Our
economists have shown that the SCE's expectations data are informative and predictive of
respondents' current and future behavior. They have also documented the substantial
heterogeneity in the formation and updating of expectations across demographic groups. To
facilitate further research, we make the survey data available in the Center for Microeconomic
Data section of our website. Each month we also illustrate the trends in our expectations series
through easy-to-use, interactive charts. Further, a number of our Liberty Street Economics blog
posts describe the data and the analysis we have conducted. We do this because we want
researchers, policymakers, commentators and the general public to understand the data and to
follow our updates.
Let me now describe our Survey of Consumer Expectations in more detail.
The Survey of Consumer Expectations
Following extensive design and testing, we launched the Survey of Consumer Expectations in
June 2013. The survey has a number of innovative and unique features, three of which I would
like to highlight today. First and foremost, as I mentioned earlier, it collects households'
subjective expectations and intentions on a wide range of economic outcomes and behaviors. In
addition to short- and medium-term inflation expectations, it collects data on households'
expectations regarding the housing, labor and credit markets, as well as households' financial
situations and a host of other macroeconomic variables of interest. For example, the survey
elicits beliefs about future wage growth, house price appreciation, job search and labor market
transitions, households' spending and income growth, and credit applications. By collecting data
on a broad range of expectations, it is possible to analyze how they interact with each other and
jointly influence households' decisions. We also study how expectations vary with demographics
and other household characteristics.
The broad scope of the SCE allows us to study many questions relevant to economic policy-
such as understanding housing market decisions, disentangling credit demand from supply,
analyzing job search behavior and measuring wage growth as people transition between jobs. In
addition, the survey has been used to help answer other policy-relevant questions as they have
come up in our discussions. Two examples are households' spending response to the decrease
in gas prices in early 2014, and households' early experiences and perceptions of the Affordable
Care Act following its enactment. Some of this analysis relies on the ability of our survey to shed
light on whether consumers expect a specific change in economic conditions to be temporary or
permanent.
A second important feature of the survey is that-in addition to simple point forecasts-for some
variables, such as inflation, we get respondents' entire forecast distributions by asking them to
assign probabilities to various ranges of future outcomes. These so-called density forecasts in
turn allow us to measure households' uncertainty about future events by looking at the spread in
their subjective distributions. Density forecasts also allow us to monitor the perceived likelihood
that respondents assign to specific events, such as deflation or a large increase in earnings.
A third important characteristic of the SCE is that it is a rotating panel. Each month about 1,300
household heads participate in our survey. This is a nationally representative sample.
Respondents remain on the panel for up to 12 months, with a constant fraction entering and
rotating out each month. This allows us to monitor the expectations of the same respondents
over time, which provides important benefits. First, it gives us greater confidence that
month-tomonth changes in our headline numbers reflect true changes in beliefs, and not just changes in
the sample composition. Second, observing repeated responses by the same individuals allows
us to examine how expectations are formed and revised over time. Third, by following the same
people over time, we are able to study how expectations are related to contemporaneous and
future economic decisions and outcomes for these respondents.
Today the SCE team will provide further background about the survey, discuss newly released
findings for October and recent trends in some of its main indicators. The team will then present
findings from two special components of the SCE: one that covers households' credit
experiences and expectations, and one that deals with labor market behavior and expectations.
Before I pass this on to my colleagues, I would like to comment briefly on these two special
surveys.
New findings on Credit Access
The SCE Credit Access Survey supplements the information collected in the Federal Reserve
Board's Senior Loan Officer Opinion Survey on Bank Lending Practices, also known as SLOOS.
The SLOOS is a primary source of information on credit standards and credit demand as
perceived and reported by banks. In contrast, the SCE Credit Access Survey, which has been
conducted at a four-month frequency since October 2013, measures experiences in credit
markets as perceived by households. The combination of the two data sources provides a more
complete picture of household credit access and demand. Today, we are releasing the October
2016 findings as well as introducing new data from the survey.
A unique feature of the SCE is its measure of latent credit demand-that is, demand that does
not lead to an application for credit. We measure this latent credit demand as the proportion of
households who report that, while needing credit, they did not apply because they expected their
application to be rejected. In addition to current credit experiences, we also elicit households'
expectations of their future credit applications and the likelihood of these applications being
approved. As we will show later, the survey provides useful insights into the extent and variation
in met and unmet credit needs across households. Moreover, our analysis indicates that
reported expectations are indeed predictive of credit outcomes reported four months later.
New Findings on Job Search
While the SCE Credit Access Survey allows us to track credit market experiences and
expectations, the SCE Labor Market Survey gathers information on the job search behavior and
expectations of employed and unemployed respondents. Aggregate labor market statistics on
earnings, employment and labor market transitions are readily available, yet relatively little is
known about the expectations and search behaviors of labor market participants and how these
change over time. Our SCE Labor Market Survey collects rich information on respondents'
actual and expected wage offers, as well as their reservation wage, which is the lowest wage or
salary they say they would accept for a new job. We also elicit expectations about future labor
market transitions, such as the likelihood of staying with the same employer, switching
employers, finding a job or being laid off.
Over time, changes in responses to these questions can shed light on how workers'
expectations evolve, and how these changes relate to observed trends in aggregate earnings
and employment dynamics. Our preliminary analyses of the data suggest that these
expectations measures are predictive of respondents' subsequent labor market outcomes. In
coming years, as we generate a longer time series for the survey, we will be able to explore
whether the expectations we collect can be used to construct leading indicators of the job
market.
Now, I'd like to turn things over to our economists, beginning with Olivier Armantier, who will
provide further background and specifics about our survey.
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Olivier Armantier, Giorgio Topa, Joseph Tracy, Wilbert van der Klaauw and Basit Zafar assisted in preparing
these remarks.