Household Financial Outlook Soars to 4-Year Peak In Wake of November Election

People shop in SoHo in New York City on Oct. 30. Michael M. Santiago/Getty Images

American households’ optimism about their future financial situation about a year into President-elect Donald Trump’s second term has surged to the highest level in more than four years, a new Federal Reserve survey shows, with the notable rise coming despite an uptick in labor market uncertainty and inflation expectations across all time horizons.

The New York Federal Reserve’s latest Survey of Consumer Expectations, carried out in the weeks following the November election and released on Dec. 9, reveals that the share of households expecting a better financial situation in the year ahead climbed to 37.6 percent, the highest level since February 2020, just before the COVID-19 pandemic sent the economy into a recession. Meanwhile, the share of respondents anticipating a worse financial outlook fell to 20.7 percent, the lowest level since May 2021.

The Fed’s findings of greater optimism aligned with other recent surveys—including from The Conference Board and the University of Michigan—which similarly showed a rise in sentiment in the weeks following the election. Recession fears fell to their lowest since mid-2022, and consumer optimism about the finances six months ahead jumped to a record high, according to the Conference Board survey.

Meanwhile, the University of Michigan’s consumer sentiment gauge jumped to a seven-month high, driven by a 21.6 percent surge in the current economic conditions index.

Despite the brighter outlook on finances, households remain cautious about the persistence of inflationary pressures, the New York Fed survey showed. Inflation expectations ticked up by 0.1 percentage points across all time horizons, the survey showed. Median one-year inflation expectations rose to 3 percent, while three-year and five-year expectations increased to 2.6 percent and 2.9 percent, respectively.

Inflation uncertainty also rose, with respondents expressing greater disagreement over future outcomes. The survey noted that inflation expectations among non-college-educated respondents fell across one- and three-year ahead time horizons.

While financial optimism surged, the Fed survey revealed signs of unease in the labor market. The mean probability of the U.S. unemployment rate being higher a year from now rose by 0.5 percentage points to 35 percent, reflecting increased uncertainty. Additionally, the perceived probability of finding a new job in the event of losing a current position declined significantly to 54.1 percent, a 1.9 percentage-point drop.

The survey also showed a slight 0.5 percentage point increase in the perceived likelihood of losing one’s job, rising to 13.5 percent. At the same time, the mean probability of leaving one’s job voluntarily in the year ahead fell by 0.3 percentage points to 20.2 percent.

The Fed survey’s picture of increased economic optimism paired with caution about the inflationary and labor market outlook is consistent with other recent reports.

The latest S&P Global Flash PMI survey of the manufacturing and service industries, released on Nov. 22, showed a broad-based improvement in year-ahead business confidence, which was particularly notable in U.S. factories, where it hit a 31-month high.

“The business mood has brightened in November, with confidence about the year ahead hitting a two-and-a-half year high,” Chris Williamson, chief business economist at S&P Global Market Intelligence, said in a statement. “The prospect of lower interest rates and a more pro-business approach from the incoming administration has fueled greater optimism, in turn helping drive output and order book inflows higher in November.”

However, the S&P survey’s measure of employment declined for the fourth month in a row in November, with job losses hitting a three-month high. Further, the number of permanent job losses increased for the second month in a row in November, hitting levels not seen in three years, according to data from the Bureau of Labor Statistics.

Still, consumers appear poised to keep spending, with a recent Gallup poll indicating that U.S. shoppers plan to spend record amounts of money on Christmas gifts this holiday season.

Consumer spending, which accounts for roughly two-thirds of U.S. gross domestic product (GDP), rose at a solid 0.4 percent month-over-month pace in October, according to data released on Nov. 27 by the Bureau of Economic Analysis (BEA).

Increased consumer spending was found to be a key driver of economic growth in the third quarter, according to a separate BEA report, which found that GDP rose by 2.8 percent in the quarter.

The latest real-time estimates for GDP growth in the fourth quarter currently stand at 3.3 percent, according to the Atlanta Fed’s GDPNow model, last updated on Dec. 9.