Consumers feel bad about the economy. Really bad. They feel the worst they’ve felt about it in a decade, including in April 2020, at the start of the pandemic.
- Consumer sentiment, as measured by the University of Michigan, dropped significantly in early February. It has been on a steady descent since its recent high last April, but the drop off has been pronounced the last few months.
Why it matters: It’s clear from the survey that inflation is the reason consumers are feeling down about the economy. Prices rose 7.5% on an annual basis in January, and real wages have been declining every month since March 2021.
Looking ahead: Sentiment can move around quickly, as it did when virus levels were driving it. The current low ebb seems more durable, probably because inflation has proven persistent and it, rather than COVID, is swaying sentiment.
- Consumers are going to need several months of much lower inflation before they start feeling better about the economy.
The silver lining is that even though they feel sour on the economy, consumers appear to be spending and behaving as if their sentiment is in fact much brighter. Let’s hope that trend persists.
Bottom line: The Biden administration and Congress need to be focused on combatting inflation by addressing the worker shortage crisis and avoiding passing inflation-fueling legislation like the Build Back Better Bill.
—Curtis Dubay, Senior Economist, U.S. Chamber of Commerce