PYMNTS-MonitorEdge-May-2024

Consumers’ Mixed Economic Sentiments Hurt by Inflation, Lifted by Labor

economy, consumer sentiment

As consumers look at their economic prospects, they are torn between factors pulling them in different directions, feeling relatively confident about the job market but remaining deeply concerned about rising prices.

Confidence Ekes Upward

The Conference Board Consumer Confidence Index rose modestly in July, signaling mixed sentiments among U.S. consumers. The index increased to 100.3 from a revised 97.8 in June. This uptick, however, masks underlying concerns. The Present Situation Index, which evaluates current business and labor market conditions, dropped to 133.6 from 135.3, indicating that consumers perceive the present economic situation as slightly deteriorating.

Conversely, the Expectations Index, reflecting consumers’ short-term outlook for income, business and labor market conditions, climbed to 78.2 from 72.8 in June. This figure remains below the 80-point mark, often viewed as a recession indicator.

Dana M. Peterson, chief economist at The Conference Board, highlighted that while confidence improved, it stayed within the limited range observed over the past two years.

“Even though consumers remain relatively positive about the labor market, they still appear to be concerned about elevated prices and interest rates, and uncertainty about the future; things that may not improve until next year,” Peterson noted.

In July, younger consumers under 35 and those 55 and older showed increased confidence, whereas the 35-54 age group exhibited a decline. Income groups displayed no clear trend, though those earning over $100K maintained the highest confidence on a six-month moving average basis, with a narrowing gap compared to other income groups.

Consumers’ assessment of the current labor market showed slight pessimism, with fewer respondents believing jobs were plentiful and more viewing them as hard to get. Short-term business conditions were seen more optimistically, with a higher percentage expecting improvement and fewer anticipating worsening conditions.

Inflation expectations held steady at 5.4% for the next 12 months, while expectations for rising interest rates fell to 50.3%. Notably, optimism about the stock market increased, with nearly half of the respondents expecting stock prices to rise.

Consumers reported plans to reduce spending on discretionary services such as gambling and personal travel, favoring less expensive options like streaming over movie outings. Despite these cutbacks, non-discretionary expenditures, including healthcare and motor vehicle services, remained priorities.

This month’s survey underscores the cautious optimism among consumers, tempered by ongoing economic challenges and uncertainties.

Or Is Sentiment Slipping?

Conversely, data from the University of Michigan’s Index of Consumer Sentiment show a decline. The findings reveal a 2.6% dip in July compared to the previous month and a 7.1% decrease compared to the previous year. The Index of Consumer Expectations, meanwhile, dropped 1.1% month over month but actually rose slightly — 0.7% — year over year.

“Consumer sentiment has remained virtually unchanged in the last three months. July’s reading was a statistically insignificant 1.8 index points below June, well under the margin of error,” the university’s Surveys of Consumers Director Joanne Hsu commented. “Sentiment has lifted 33% above the June 2022 historic low, but it remains guarded as high prices continue to drag down attitudes, particularly for those with lower incomes.”

The Bare Necessities

Indeed, lower-income consumers are seeing the vast majority of their earnings go toward covering their basic needs. PYMNTS Intelligence research reveals that consumers who make less than $50,000 annually spend 72% of their income each month covering food, monthly bills and housing, with the lion’s share going to the latter.

Furthermore, research from this month’s installment of the PYMNTS Intelligence study “New Reality Check: The Paycheck-to-Paycheck Report” reveals that roughly two-thirds of consumers live paycheck to paycheck, and nearly one in four consumers do so with issues paying their monthly bills.

PYMNTS-MonitorEdge-May-2024