Light Wave

U.S. News

Not So Thankful: Consumers Think Economy Will Worsen In Coming Months

By CM Chaney · November 23, 2023

In brief…

  • Consumer sentiment index dropped but older consumers showed improved outlook
  • Inflation expectations oddly rose despite easing price pressures
  • Sentiment readings consistently more negative than actual spending
  • Fed still concerned on inflation but surprised economy holding up
Contradictory consumer sentiment data showing confidence declining while inflation worries rise even as prices moderate reflects the complicated psychological impacts of inflation and the ambiguity around whether the economy can stay resilient against aggressive Fed rate hikes.  Boxed Water Is Better / Unsplash

U.S. consumer confidence declined in November according to the University of Michigan’s monthly survey, with the consumer sentiment index falling 3.9% to 61.3.

However, beneath the surface lay contradictions that paint a complex picture of public economic outlook.

While the overall index dropped along with the sub-indexes for current conditions and future expectations, sentiment actually improved for Americans aged 55 and up.

“Younger and middle-aged consumers exhibited strong declines in economic attitudes this month, while sentiment of those age 55 and older improved from October,” explained survey director Joanne Hsu.

Likewise, consumers’ year-ahead inflation expectations curiously rose to 4.5%, the highest level since April, even as inflationary pressures continue to ease according to latest data.

“Consumers appear worried that the softening of inflation could reverse in the months and years ahead,” Hsu noted.

This aligns with a growing gap seen this year between dour consumer sentiment readings and actual resilient economic behavior in areas like retail sales.

Experts attribute heavier weighting of inflation reaction in sentiment measures, given the substantial 20% cumulative price increase over the past three years, versus a deceleration of inflation by two-thirds since summer 2022. Sentiment splits along political affiliations also skew the index, with Republicans expressing much gloomier views than Democrats.

Meanwhile, recent Federal Reserve meeting minutes highlighted ongoing inflation concerns but surprise at the still-strong economic outlook for 2023. This surprise also stems from the lack of expected recession notwithstanding the Fed’s intense rate hikes.

“You can’t have a recession without fired workers and it looks like there are none, or at least not enough of them to predict a recession with confidence,” said economist Chris Rupkey.

Falling bond yields and unemployment claims numbers point to enduring economic health for now, though the conflicting consumer sentiment and inflation expectations data presents an ambiguous perspective on where things may turn next. While some indicators suggest the Fed’s policy medicine may be working with manageable side effects, worries persist about the potential for recession once the delayed impacts kick in more widely.