A confusing economy
The economy is sending us mixed signals right now. The unemployment rate is at historic lows, even as consumer spending remains high and persistent.
And, notably, spending is still strong despite elevated rates of inflation. The recession many feared has not yet come as the Federal Reserve put in place policies to cool down the economy. But that doesn’t mean we are out of the woods yet. There is still a lot of uncertainty around when consumers might scale back their spending, potentially sending ripple effects throughout the economy.
Given all that, we discuss what you need to know about the economy and consumers in the five charts below, using our new and improved consumer confidence numbers.
- Which way? The economy is at a crossroads. Consumer expenditure has grown over 25% since this time in 2019, with no signs of people slowing down. At the same time, unemployment is sitting at lows the country hasn’t seen in over fifty years. It still looks like the economy is running pretty hot. Which way will things go? We will see.
- In the middle. Many consumers feel hopeful about the future and secure in their jobs, rivaling levels we saw right before the pandemic. But, people’s confidence in the current economy and their ability to invest in their lives remains depressed. These contrasting signs bring consumer confidence to a middling, lukewarm place. Consumers are feeling the same dissonance that we are seeing in the official statistics.
- Regressive tax. Some of these mixed signals hide differences below the surface. Affluent Americans are feeling much more confident in the economy across every subindex. However, lower-income Americans are not experiencing that same confidence in the economy. Inflation is a regressive tax. The tale of two cities strikes again.
- Weaker signs? Concerns about the cost of living are being felt across the board. Americans feel about as confident making household purchases as they did during the early days of the pandemic in March 2020. While job security has softened, more people are confident in their job security than in their ability to buy groceries. What happens if jobs take a turn for the worst? Consumer confidence will likely follow.
- Positive on jobs. Few Americans expect their friends or family to lose their job in the next six months. By comparison, global insecurity about jobs is about twice as high as U.S. insecurity. That robustness of jobs is boosting confidence overall. Will it last? It is hard to say, but it is the lynchpin that buoys consumer confidence today.
So, how do we come to terms with these conflicting signals? It might seem contradictory. But we need to be comfortable with being uncomfortable. It makes sense, right?
