, the trajectory of wages and the strength of the labor market. the u. s. expansion is now in its eighth year. by historical standards, it is long in the tooth. despite this, i am optimistic that the economic expansion will continue over the next few years. first, it is important to note that economic expansions don ’ t simply die of old age. usually, they end either because inflation climbs and the federal reserve responds by shifting to a much tighter stance for monetary policy, or because the economy gets hit with a large unanticipated shock that the fed and the fiscal authorities cannot respond to quickly enough, or with sufficient force, to prevent an economic downturn. while economic shocks are, by their very nature, difficult to forecast, the risk that the fed will snuff out the expansion anytime soon seems quite low because inflation is simply not a problem. not only are underlying inflation trends very subdued — for example, the core personal consumption expenditures deflator has risen at only a 1. 7 percent annual rate over the past year — but the economy is not growing much above its sustainable long - term pace. thus, while pressures on labor resources have been increasing, but quite slowly. finally, the recent strengthening of the dollar will put downward pressure on import prices and limit the ability of domestic producers to raise their prices. second, the household sector ’ s financial condition is in unusually good shape for this point in the economic cycle. household indebtedness is relatively low, debt service burdens relative to household income have fallen to levels not seen since at least the early 1980s. moreover, household incomes are rising at a moderate pace, supported by continued job gains and some modest strengthening of wage compensation trends. if households and lenders again become comfortable with financing consumption with debt in addition to income, this will provide additional support to household spending and to the current economic expansion. the challenges in the retail space over the near term, therefore, are not likely to be a shortfall of aggregate demand from households. instead, it seems to me the challenges lie more in how to satisfy households ’ changing demands for goods and services, and the medium through which these demands are satisfied — whether it be brick and mortar or online. also, there is the important issue of how to retain brand loyalty in a world where information is ubiquitous and always near at hand, and it is easy to shift purchases among participants in the retail marketplace. thank you for your kind attention. 5 / 5

william c dudley : evolving consumer behavior remarks by mr william c dudley, president and chief executive officer of the federal reserve bank of new york, at the national retail federation annual convention, new york city, 17 january 2017. * * * andrew haughwout, joseph tracy and wilbert van der klaauw assisted in preparing these remarks. good morning. it is a pleasure to have the opportunity to speak at this year ’ s gathering of the national retail federation. retail activity plays a key role in the u. s. economy, with consumption comprising about two - thirds of total gross domestic product. as such, understanding what is happening in your sector is critical in assessing the economic outlook — and, with that, the outlook for employment, inflation and interest rates. as always, what i have to say reflects my own views and not necessarily those of the federal open market committee or the federal reserve system this morning, i will be focusing on retail spending — an important element of household consumption. but, i will do so in a way that ’ s perhaps somewhat different from the usual approach, focusing in particular on the connections between housing and retail sales. i will argue that there have been some dramatic changes that have taken place in the way that households finance their consumption. i believe — and hope to convince you — that changes in the housing and mortgage markets have affected the willingness and ability of households to borrow, and that this, in turn, has had important consequences for the dynamics of consumption over the last decade. it is an important reason why the economic recovery and expansion have been weaker than we would like, despite the efforts of the federal reserve to stimulate economic activity. it also matters as we look forward. the good news is that, while the current expansion is quite old in chronological terms, it is still relatively young in terms of the health of household finances. later in my remarks, i will talk a bit about the outlook for consumer spending in 2017 and beyond. it ’ s worth starting off with some background in order to develop the linkage between housing wealth and retail spending. household incomes tend to increase as individuals grow older and become more skilled in their work and better matched to their employers. this tends to continue until they approach retirement age. this means that incomes are much higher later in life than when people first enter the workforce. ideally, households would like to be able to even out their consumption based on their lifetime incomes, raising consumption in their early adulthood years. in general, this