Americans are feeling rosier about their finances, the stock market and inflation’s decline

By Alicia Wallace, CNN

(CNN) — Presidential election polls may be showing that some Americans have mixed, if not outright sour, views on the overall economy — but when it comes to how they view their own finances, things are looking pretty good.

US consumers are more optimistic about their current and future financial situation, the stock market and slowing inflation, according to survey data released Monday by the Federal Reserve Bank of New York.

The New York Fed’s May Survey of Consumer Expectations showed improvement of people’s perceptions of their current financial situation as well as their outlook for a year from now. The share of respondents who said their financial situation was better than in May 2023 was at its second-highest level in more than two years, while the year-ahead positive share landed at its highest level in nearly three years.

Monday’s survey also showed improved optimism beyond the homefront: Notably, consumers believe the markets’ good times could keep rolling. Households’ expectations for highest US stock prices improved to a three-year high.

In terms of the labor market, the latest survey was a little mixed.

Earnings growth expectations dipped slightly, while the expected probability of the national unemployment rate being higher next year increased above the 12-month trailing average. At the same time, consumers’ perceived probability that they’d lose their job decreased below the 12-month trailing average.

The May Survey of Consumer Expectations showed a rosier picture than the New York Fed’s survey a month before, which showed respondents bracing for even more expensive homes — anticipated home price growth hit a nearly two-year high — while year-ahead inflation expectations picked up to the highest level in five months.

In May, home price expectations were still high, unchanged from the month before; however, inflation expectations dipped — and that’s a good sign for the Federal Reserve.

The Fed closely monitors gauges of near-, medium- and long-term inflation expectations as those could be self-fulfilling prophecies for consumers: If people think prices will be higher in the future, they might spend more now or even demand higher wages. In turn, businesses faced with higher costs might end up raising prices as a result.

Monday’s survey showed that the three- and five-year inflation expectations were unchanged.

The US will get a critical read on the state of inflation this week with the release of the May Consumer Price Index on Wednesday morning.

The most widely used inflation gauge is expected to show that consumer prices slowed on a monthly basis and that a key underlying inflation metric has also cooled.

If the expectations hold true, that would be welcome news for Americans weighed down by three-plus years of elevated inflation, the Fed in its fight to rein in price hikes, and the markets.

When the April CPI showed inflation on a cooler trajectory than it had started the year, the major US stock indexes all surged to record highs.

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