Consumer sentiment is down. Will consumer spending follow?
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Whatever the data might say about a strong economy — that the job market is booming, wages are rising and economic growth is recovering — for the past few months, consumers have been feeling worse and worse about their finances. The University of Michigan’s consumer sentiment index for early February is down 8% from last month to its lowest level in a decade.
You can guess what’s behind this: inflation the likes of which the country hasn’t seen in 40 years. But the million-dollar question here is will our feelings bring down our spending?
While surveys these days find consumers feeling merely “meh” to downright dismal about the economy, the idea that negative sentiment drives consumers to pull back on spending no longer quite holds, said Robert Frick at Navy Federal Credit Union.
“We’ve seen a stark divergence between sentiment and spending,” Frick said.
There’s a lot of pent-up demand out there for things like cars, clothes and travel, and lots of money saved from stimulus checks and stock gains.
“Yes, there’s inflation, but people still have a lot of money, and they’re going to spend the money regardless,” Frick said.
There’s also a partisan disconnect, said Chris Jackson at public opinion firm Ipsos.
“Republicans say the economy’s terrible, Democrats say the economy’s OK. People’s view of the economy has become untethered from their actual personal experiences,” Jackson said.
When it comes to personal spending plans, Ipsos finds the percentage of consumers who think this is a good time to make household purchases is rising.
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