Consumers are so demoralized by inflation and high rates that they’ve given up on saving for the American Dream and are spending money instead, economist says

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Despite ongoing consumer pessimism, spending remains surprisingly robust. Economist Joanne Hsu, director of the University of Michigan’s consumer sentiment survey, provided insights into this paradox, attributing it to a shift in consumer behavior driven by high prices and interest rates.

Key Points

  • Americans are abandoning traditional saving goals due to perceived unattainability.
  • Aspirational goals such as homeownership, paying for college, and retirement savings are increasingly viewed as out of reach.
  • High prices and interest rates are discouraging savings, leading to increased current spending.
  • The University of Michigan’s consumer sentiment survey showed a significant drop to 67.4 in May, down from 77.2 in April.
  • Persistent inflation and high interest rates, coupled with fears of rising unemployment, are contributing to negative sentiment.
  • Despite cooling inflation from a peak of 9% in mid-2022 to 3.4% recently, prices remain elevated compared to pre-pandemic levels.
  • The strong labor market is a key factor enabling continued spending.
  • Recent data show potential signs of softening in the labor market, which could affect future consumer behavior.
  • The April jobs report indicated a slowdown, with lower-than-expected job gains and a slight increase in the unemployment rate to 3.9%.
  • Consumers expect the labor market strength to persist, supporting current spending patterns.
  • Further cooling in the job market could prompt the Federal Reserve to consider interest rate cuts, potentially improving consumer sentiment.
  • Analysts note that despite a weak retail sales report, overall consumer demand remains strong and continues to drive GDP growth.
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Source:

ca.finance.yahoo.com/news/consumers-demoralized-inflation-high-rates-174002384.html?guccounter=1

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