High prices, weak labor market are driving sour consumer sentiment

Consumers are not feeling so great about the economy at this moment in time.

The latest sentiment data, out Friday from the University of Michigan, improved very slightly from January — but so little that one might as well call it unchanged. On the whole, consumers are feeling 20% worse about the economy than they were a year ago.

People are thinking most about “kitchen table” issues, said Joanne Hsu, a professor at the University of Michigan who runs the Surveys of Consumers.

“Their top two concerns are the persistence of high prices, as well as weakening labor markets,” she said.

Hsu said people are more worried now about the possibility of losing their job than they have been since the early months of the COVID-19 pandemic in 2020.

“The pain of high prices, that’s something that has been cited by consumers for the last four years,” she said. “But when it comes to the labor market, that’s actually relatively new. That only started to emerge last year.”

The labor market is now a primary driver of consumer sentiment, Hsu said.

Hector Sandoval, director of the University of Florida’s economic analysis program, said that makes sense given all the headlines lately about layoffs and how companies aren’t hiring.

“You hear all this news, like it’s hard to get a job, job openings are low,” he said. “And then, there is low fire, low hire.”

Hearing that all the time gets in people’s heads, and affects how they feel about the economy. But Sandoval said that even when there aren’t a lot of job-related headlines, that sentiment remains.

“The labor market is always something very important,” he said. “The job is, I think that’s something that is always on the consumer minds.”

How people feel about their own job security and future employment prospects is always going to play into their overall sentiment about the economy, said Americus Reed, marketing professor at the University of Pennsylvania’s Wharton School.

“There’s a collection of pillars that are sort of the basis of life — the job market, prices, affordability, how am I doing with my bills,” Reed said.

Which of those factors are front and center at any given moment varies, he said, depending on what’s happening in the country. But, ultimately, he said how people feel about the economy is going to be most affected by how they’re doing personally.

“So if you say, ‘well, the stock market is up, gas prices are down and blah blah blah, things are going great’ — that’s not going to land on me, because I know what I’m experiencing inside of my own body,” Reed said.

And that matters more than news headlines.