Posted on 05/20/2024 6:03:44 AM PDT by george76
An economist offered an explanation for a paradox that has emerged in recent data showing that spending has remained robust even as consumers report feeling pessimistic.
Joanne Hsu, who is the director of the University of Michigan’s consumer sentiment survey, told CNBC on Friday that she thinks Americans have abandoned plans to save money as they see their financial goals look less attainable and are spending money instead.
“This positive spending is not a reflection of some sort of internalized secret sense of confidence that consumers have,” he explained. “And instead my interpretation is that consumers see that a lot of aspirational goals that we talk about as part of the American Dream—homeownership, paying for college, paying for college for your kids, having a comfortable retirement—with high prices and high interest rates right now, those aspirational goals just feel increasingly out of reach.”
And as a result, consumers have “given up” on saving for those goals, Hsu added, noting that the still-strong labor market allows them to spend now.
The latest reading of the University of Michigan’s survey showed sentiment plunged to a six-month low of 67.4 in May from a final reading of 77.2 in April as Americans cited stubbornly high inflation and interest rates, as well as fears that unemployment could rise.
While that report was followed days later by the April consumer price index that showed inflation cooled, it followed three straight months of unexpectedly high prices. Consumer-facing companies have sounded the alarm on the impact that inflation and high rates are having, especially on lower-income shoppers.
To be sure, inflation has come down sharply from the four-decade-high 9% rate in mid 2022 to 3.4% last month. But that means prices are going up less quickly rather than returning to pre-pandemic levels, and the cumulative sticker shock over the last few years still weighs on sentiment.
Meanwhile, gauges for consumer demand have held up. In the first quarter, it continued to drive GDP growth. And despite a weak retail sales report, analysts have noted the overall trend points to continued spending.
For now, consumers expect the strong labor market to persist, giving them enough confidence to spend, but the latest data show some softening, Hsu warned.
“That’s possibly an early sign of oncoming weakness for consumers. But as of now, strong incomes are supporting consumer spending,” she added.
But the labor market has also hinted at some cooling off after blockbuster gains earlier this year. The Labor Department’s April jobs report came in well below expectations, while the unemployment rate ticked up to 3.9% from 3.8% in March.
Exactly normal for high inflation. As people watch their money losing value, they’ll trade their money for things that will keep it. Any hard good will do, though some are better than others.
That’s the purpose of artificially created high inflation.
All the idiots get exactly what they voted for!
Do you live in a high crime area? there is nearly a 100% chance that it is run and has been run by Democrats for decades!
Are you local schools complete garbage? there is nearly a 100% chance that it is run and has been run by Democrats for decades!
I could go on and on
“Flight into real goods,” is what Austrian Economists call it…..
Many probably figure they can be bailed out in the future in exchange for voting DEM.
They are already floating forgiving credit card debt.
What else could all those tattoos in young folk mean?
“. . . labor market . . . blockbuster gains earlier this year.” Most of those “blockbuster gains” were people taking on second and third jobs in order to pay the bills.
I watched a clip from Reventure Consulting on YouTube this morning(I have no relation to this site). He was stating that mortgage defaults were up substantially recently. Especially on new home owners and FHA loans.
This is the same guy who pointed out that the default rate on Discover and Capital One credit cards roughly doubled in the first quarter of 2024.
I am seeing a reduction in trucking cost in my business. This means we are paying less in the freight cost/mile that we are booking flatbed/vans trucks at. Rates topped out during covid. Rates are down 10-15% from their highs. This is NOT due to lower operating costs. Trucking companies are paying drivers more. Semis and trailers cost more. Diesel coast more. The rates are down because there is NOT enough freight to fill up the trucks. It is a sign of the economy slowing down.
Maybe some are. But the conservative investor in me loves socking money away at 5.75% guaranteed interest after 6 months.
Good plan . Avoids some local taxes, too.
Long term problem as real inflation eats into the principal.
Also, after “COVID”, a lot of people realize that they can be locked down and bankrupted at any moment. Might as well spend what you have now, before A) the government takes away your freedom, and B) Bidenomics completely devalues what money you have.
Bookmark what this person said.
Spend it while it’s still worth anything...
Exactly correct.
“Inflationary expectation” is both real and a normal response.
This so mirrors the last days of the Jimmy Carter admin - also a Dem. Surprise.
They are dumb as a box of rocks, I spend no more than necessary. But then I’m 76 in Aug. I spend on Prepping to eat, and defend it.
That makes me want to run up my credit cards. I keep mine paid down.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.