CONSUMER SENTIMENT

US consumer sentiment sinks to its lowest level in more than a decade

By our News Team | 2022

Half of all American households reported that the economy had worsened, while more than half think there could be another recession.

Consumer sentiment in the United States during January fell to its lowest level since November 2011 – more than a decade ago. This is according to a monthly survey released by the University of Michigan. 

The Delta and Omicron variants were largely responsible for the drop in favourable sentiment. But other factors – some of which were initially triggered by Covid – have become independent forces shaping sentiment, said economist Richard Curtin, who is director of the university’s surveys.

While supply chains and essential workers have sparked the initial increases in prices and wages in the US, a wage-price spiral that has subsequently developed is no longer tied to those precipitating conditions, he said. Household spending has been supported by an extraordinary pace of rising home and stock prices that is likely to turn negative in the year ahead.

Consumer sentiment

Photo by Wallula from Pixabay

Overall confidence in government economic policies is at its lowest level since 2014, and the major geopolitical risks may add to the active confrontations with other countries. Although their primary concern is rising inflation and falling real incomes, American consumers may misinterpret the Federal Reserve Bank’s policy moves to slow the economy as part of the problem rather than part of the solution, Curtin said.

Most consumers think US economy is in a weakened state

“The Fed is about to raise interest rates to tame inflation. Their actions will slow job and wage growth and trim gains in stocks and home values,” he explained. “By slowly hiking rates, one of the Fed’s goals is to prevent any noticeable impact on all other aspects of the economy, except inflation. Such a soft landing has a reasonable chance of success if accompanied by a positive economic environment, not one where the majority of consumers view the economy as already in a weakened state.

“The danger is that consumers may overreact to these tiny nudges, especially given the uncertainties about the coronavirus and other heightened geopolitical risks. Clear policy communication is insufficient if it does not also advance consumers’ understanding of the economic tradeoffs involved and their plans to actively alleviate any undue harm.”

Among all consumers, 75% reported inflation rather than unemployment as the more serious problem facing the nation. 

These heightened concerns were reflected in half-century record numbers of consumers who negatively judge current market prices for homes, vehicles and durables. While these concerns were higher than in the late 1970s, when inflation was about twice as high, those high rates were not personally experienced by most of today’s consumers.

According to the University of Michigan, consumers think the national economy started 2022 in a weakened state. Half of all households reported that the economy had worsened, and just one-third think it will improve during the year ahead. When asked about the longer-run prospects for the national economy, uninterrupted growth was expected by just 33% in January 2022, while 58% anticipated a renewed recession.

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