Delve into the intricacies of ‘Bidenomics’ and its effects on consumer confidence. Explore inflation concerns, economic sentiment surveys, and the broader impact on the US economy.
Have you heard of ‘Bidenomics’? Surprisingly, it’s a term meant to describe a positive economic approach, although it wasn’t always viewed that way.
Initially, ‘Bidenomics’ was used mockingly by the president’s critics, associating it with economic conditions like high inflation and rapid interest rate increases. Just last month, former President Donald Trump quipped at a fundraiser, “One of the most crucial issues of the campaign will be who can rescue our country from the burning wreckage of Bidenomics,” defining it as inflation, taxation, submission, and failure.
Despite robust economic headlines such as low unemployment, increased consumer spending, and GDP growth, the administration has sought to redefine ‘Bidenomics’ as a positive force, rooted in growing the economy from the middle and bottom.
However, this PR effort appears to be struggling. A recent CNN poll showed that only 25% of the country views current economic conditions as ‘good,’ with more than half believing that the economy is still in a downturn.
As for how President Biden is handling the economy, just 37% approve, while 63% disapprove, according to the same CNN poll.
Surprisingly, these sentiments aren’t limited to one political spectrum, as this is a CNN poll.
Adding to the gloomy outlook, recent consumer sentiment indicators are either declining or holding steady, despite some positive economic indicators in recent months.
The Conference Board’s Consumer Confidence Index fell in August after showing improvement in June and July. The University of Michigan’s Index of Consumer Sentiment, though slowly improving since May, seems to have hit a plateau.
Moreover, the New York Fed’s Survey of Consumer Expectations for August indicates that longer-term inflation expectations are at their highest levels in over a year, while measures of personal financial prospects suggest that recent consumer optimism about the future may be diminishing.
These surveys, reflecting consumers’ outlook, suggest that despite some promising economic data, Americans are less than enthusiastic.
So, what’s causing this subdued sentiment? In the coming week, we will delve into these surveys to uncover the reasons behind this pessimism.
Survey Findings Indicate Deterioration in Overall Optimism
The insights from the New York Fed’s Survey of Consumer Expectations paint a less optimistic picture of what the near-term future holds for both the nation and individual Americans.
Despite a notable decrease in inflation compared to the previous year, consumers do not seem confident that it will return to the Federal Reserve’s 2% target anytime soon. The August survey data reveals that while expectations for medium-term inflation (three years ahead) decreased by 0.1 percentage points from July, settling at 2.8% from 2.9%, consumers anticipate higher inflation one year from now and five years from now compared to their July predictions.
One year from today, consumers expect inflation to be at 3.6%, a 0.1 percentage point increase from July. In the five-year outlook, they project inflation to remain at 3.0%, another 0.1 percentage point increase from the previous survey.
This is not the end of the concerns. Expectations for income growth dipped in August, falling from 3.2% in July to 2.9% in August, marking the lowest level since July 2021. Additionally, expectations for job loss surged from 11.8% in July to 13.8% last month, reaching the highest level since April 2021. It appears that there is a notably heightened sense of anxiety among Americans about their future job security.
As a result, the median expected growth in household income also declined last month, dropping by 0.3 percentage points to 2.9%, the lowest point for this metric since July 2021.
All these factors contribute to a broader measure aimed at assessing consumers’ expectations regarding their overall financial situations one year from now. The August survey outcomes indicate that the percentage of consumers who anticipate their households will be either “somewhat better off” or “much better off” at that time decreased to 23.8% last month from the 29.3% who held the same expectation in July.
The Consumer Confidence Survey Conducted by The Conference Board
The outcomes from another survey, namely The Conference Board’s Consumer Confidence Survey, also mirror a recent shift in consumer sentiment. The primary gauge derived from the survey findings, known as The Conference Board’s Consumer Confidence Index, experienced a significant decline last month, dropping from 114.0 in July to 106.1. (Readings above 100 signify heightened optimism, while those below 100 indicate increased pessimism).
Dana Peterson, who serves as the chief economist at The Conference Board, observed that this downturn in the index effectively wiped out the consecutive increases noted in June and July. She pointed out those write-in responses from consumers once again highlighted concerns about rising prices, particularly for essential items like groceries and gasoline. Notably, the decline in consumer confidence was observed across all age groups, with particular significance among those with household incomes of $100,000 or more and those earning less than $50,000.
Furthermore, a key component of the overall index, the Expectations Index, which assesses consumer outlook for conditions six months ahead, plummeted from 88 in July to 80.2 last month. This component was already firmly positioned in the realm of pessimism, and its decline continued in August. The 80.2 reading is noteworthy because it now hovers just slightly above the crucial threshold of 80, a level that The Conference Board historically associates with signaling an impending recession within the next year.
Dana Peterson, in her analysis of the sharp drop in the Expectations Index, noted a diminished confidence in future business conditions, job availability, and income prospects. She attributed this decline to consumers potentially receiving negative news about corporate earnings, a narrowing job market, and rising interest rates, which are making major purchases more costly. The economist also highlighted an uptick in average 12-month inflation expectations as a contributing factor.
The University of Michigan’s Consumer Sentiment Index
In June 2022, the University of Michigan’s Consumer Sentiment Index reached a historic low, recording a figure of 50. This marked an all-time low, even though the data series only dates back to 1952. Remarkably, it means that consumers were less pessimistic during the tumultuous periods of the 1970s, known as the “Great Inflation,” and the global financial crisis.
Interestingly, this record low coincided with the same month when annual inflation surged above 9%, a level not seen in nearly 41 years.
Since that low point in June, the index has shown signs of recovery. In July, it rose to 71.6, although still notably below its historical average of 85.5. By August, the index dipped slightly to 69.5, and in September, it experienced another decline to 67.7, falling below economists’ expectations.
Notably, in September, respondents to the survey expressed a decrease in their one-year inflation expectations, dropping from 3.5% to 3.1%. This contrasts with the trends seen in the New York Fed and Conference Board surveys. However, Joanne Hsu, Director of Surveys of Consumers, highlighted that “consumers have taken note of the stalling slowdown in inflation,” and overall, consumers remain cautious about the economy’s trajectory.
So, what’s driving this consumer sentiment, which appears at odds with low unemployment rates and other headline economic indicators suggesting robust growth?
Consumer Concerns Continue to Revolve Around Inflation, Which Is Now Accelerating
Inflation Remains a Central Concern for Consumers, and Recent Data Shows It’s Picking Up Speed
One consistent theme running through these surveys is the persistent worry about inflation, and the latest inflation figures aren’t likely to ease the concerns of those who have been fretting about it.
While it’s true that inflation had been on a general slowdown since reaching the 9.0% mark in the consumer price index (CPI) last year, it’s clear that inflation is far from resolved. Just this week, we received a reminder of how stubborn price pressures have been during this ongoing inflation cycle.
In August, the headline consumer price index (CPI) surged at a monthly rate of 0.6%, marking its quickest pace since June 2022. Year-over-year inflation also gained momentum last month, increasing to 3.7% after reaching 3.2% in July.
Even the core CPI, which excludes the volatile food and energy prices and is considered a more accurate measure of economic inflation, accelerated in August, rising by 0.3% compared to 0.2% in July. While the annual core number did decelerate to 4.3% from 4.7%, it still significantly surpasses the Federal Reserve’s 2% target level.
Complicating matters for consumers are elevated interest rates. Inflation naturally exerts upward pressure on prices, and higher interest rates are implemented specifically to combat inflation. However, higher interest rates also make products more costly. In the current scenario of persistent inflation and elevated interest rates, consumers are grappling with the price impacts of both factors.
In this context, Dana Peterson from The Conference Board noted from the August survey results that “expectations for interest rates jumped in August after declining two months ago.” This suggests that while there may be prevailing beliefs that rate hikes are nearing an end and rate cuts are on the horizon, consumers may not share this optimism. Given the recent acceleration in CPI mentioned earlier, their concerns seem justified.
Another recurring theme in these surveys is concerns about job security. The July JOLTS report (Job Openings and Labor Turnover Survey) indicated a decrease of 338,000 job openings in July compared to June, with the total number of job openings at 8.8 million by the end of July, the lowest level since March 2021. Notably, the report showed a decrease of 253,000 in the number of quits, implying that Americans might be becoming less confident in their ability to swiftly find a comparable job if they were to lose their current one.
The current state of the economy is undeniably complex. There are headline figures, such as the previously mentioned employment and consumer spending data that seem to suggest a robust economic performance. However, the various consequences of chronically high inflation and interest rates indicate a different economic reality. At present, it appears that an increasing number of Americans perceive this alternate reality as their lived experience.
Explore the decline in consumer confidence and its causes, including inflation concerns, economic sentiment surveys, and the impact of ‘Bidenomics’ on the US economy. For more details www.goldinvestors.us