Consumer Sentiment: Do Americans See Brighter Days Ahead?
This week, Craig Siminski, of CMS Retirement Income Planning, shares with us an article discussing why policymakers pay attention to how consumers are feeling, and what’s behind Americans’ lack of confidence:
Each month, researchers at the University of Michigan ask hundreds of consumers what they think about present market conditions, the job market, their personal finances and buying intentions, as well as the prospects for the general economy in the future (Samples are statistically designed to be representative of all American households). Their answers to about 50 questions are captured in the Index of Consumer Sentiment, which includes the Index of Current Economic Conditions and the Index of Consumer Expectations.
After a long stretch of downbeat readings, this closely watched gauge of consumer confidence turned more optimistic at the beginning of 2024. Between November 2023 and January 2024, the University of Michigan’s Consumer Sentiment Index improved 29%, the biggest two-month increase since 1991. In March 2024, the index reached its highest point since mid-2021 before dipping again over the following three months. Year-ahead inflation expectations dropped from 4.5% to 3.0% over the same period.
Businesses, investors, and policymakers — including Federal Reserve officials who must determine when and how much to lower interest rates — pay attention to how consumers are feeling, because household spending accounts for more than two-thirds of all U.S. economic activity.
Perplexing Signals
In the past, consumer sentiment has been a reliable indicator of the direction of the economy in the near term, with the index rising during periods of expansion and falling sharply at the beginning of recessions. Yet, the 2022–2023 readings were out-of-sync with an improving economy.
In June 2022, sentiment reached a record low — worse than readings during the pandemic and the 2007–2009 Great Recession — and they remained weak through most of 2023. But after that mid-2022 plunge, real gross domestic product (GDP) growth strengthened and…
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Craig Siminski is a CERTIFIED FINANCIAL PLANNER™ professional, with more than 25 years of experience. His goal is to provide families, business owners, and their employees with assistance in building their financial freedom.
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