WASHINGTON (TND) — Americans are uncertain about the future of the economy with higher prices outweighing stable job growth and opportunities for people to make more money when they think about the financial future of the U.S.
Measurements of consumer attitudes toward the economy are bringing conflicting thought trains in recent months. Surveys have found that despite feeling good about their personal finances or local economies, a majority of Americans see the U.S. economy on the wrong track.
Another example of conflicting outlooks came on Tuesday with the Conference Board’s consumer confidence index, which rose in May after three months of declines. It measures Americans’ assessment of current conditions and the outlook over the next six months. Short-term expectations for income, business and the job market also improved to 74.6 in May from 68.8 in April. Figures under 80 have historically signaled a potential recession on the horizon.
Consumers in the Conference Board’s survey listed prices, particularly for food and groceries, as having the biggest impact on their view of the economy. They also expected higher inflation and interest rates over the next year.
It comes as inflation has proven stubborn at over 3% after a rapid slowdown from 2022 into 2023. Sentiment toward the economy improved as inflation dipped and price increases became more manageable for households, but Americans have consistently held a sour outlook on the economy.
“It's nice that inflation is at 3% now instead of 9%, but compared to a year or two ago, people are paying noticeably higher prices and just because of the way inflation works, it's not gonna go back down to those previous levels and not everyone knows that,” said Ryan Young, a senior fellow at the Competitive Enterprise Institute. “The price level overall doesn't really matter. It's the changes in it.”
The University of Michigan’s consumer sentiment index also reached a six-month low in May. Michigan’s survey found consumers are worried about inflation, unemployment and interest rates moving in the wrong direction over the year ahead.
Americans’ interpretations of the economy are in direct contrast with federal data that has shown continued growth and low unemployment despite concerns about a Federal Reserve-induced recession as they raised interest rates to bring inflation down. A Harris-Guardian poll released last week found more than half of Americans believe the economy is in recession and shrinking, nearly 50% believe unemployment is at a 50-year high and that the S&P index is down for the year, all of which are opposite from the data.
Concerns about the economy’s future can lead to lower spending, which cools activity and limits growth because consumer spending makes up a significant portion of U.S. gross domestic product. Slower spending helps ease inflationary pressures and could help the Fed achieve its goal of getting inflation back to 2% but also runs the risk of helping prompt an economic slowdown.
“Most people feel pretty decent about their own financial situation. They just tend to think that the rest of the country is in trouble,” Young said. “When everybody thinks that, you get that slowdown effect, but people have been thinking that for a while. So, I think it's really credibility problem that the Fed and that Congress and the president have with their spending restraint.”
The economy has slowed this year but is still on a positive trendline with first quarter GDP growing 1.6%, down from 3.4% in the last three months of 2023. Consumer spending has also slowed with retail sales coming in flat in April from a modest gain in March as shoppers are having to stretch budgets and are more hesitant to use credit cards with higher interest rates.
The labor market has cooled from the highs of the post-pandemic resurgence that brought record growth but is still strong compared to historical standards. Unemployment has been under 4% for more than two years straight, the longest consecutive streak since the 1960s. Employers have also continued to add jobs at a more sustainable pace, which has helped cool wage increases that the Fed saw as an obstacle to lowering inflation pressures.
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