“Economic Trends: Why Consumer Confidence Remains Low Despite Positive Indicators”

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Understanding Consumer Sentiment: Pessimism vs. Optimism

Consumer sentiment has been notably low since 2021, despite many economic indicators showing improvement. This article explores the reasons behind this pessimism and highlights some optimistic trends.

3 Reasons for Pessimism

Several factors contribute to the persistent pessimism among consumers:

1. Inflation Concerns

Inflation continues to affect consumer moods. Many people have not experienced persistent inflation in over 30 years. Although inflation cooled to 3% in June 2023, it will take more time to convince consumers that prices are stabilizing.

2. Low Savings Yields

Current savings yields are much lower than in the 1990s. Even the best savings accounts offer rates barely exceeding 4% APY in 2023, compared to over 6% in the past. This makes it harder for consumers to counterbalance declining purchasing power.

3. Rising Interest Rates

The Federal Reserve’s rate hikes to control inflation have increased credit card APRs by 5 percentage points, affecting consumer spending and borrowing. Older consumers are the only group spending as much or more than they did in 2022.

4 Shots of Optimism

Despite the pessimism, there are several positive signs for consumers and households:

1. Low Unemployment Rates

The national unemployment rate was 3.7% in May 2023, a level not seen since the late 1960s. This indicates near-full employment.

2. Increasing Wages

Wages are rising, especially in the service sector, which has historically been lower-paying than manufacturing and office jobs.

3. Higher Checking Account Balances

Both high- and lower-income Americans have more cash in their checking accounts than before the pandemic, according to data from Bank of America and JPMorgan Chase.

4. Willingness to Invest

The percentage of Americans owning stock reached 61% in 2023, the highest since the 2008 recession. This is a significant increase from 2019, when only 55% reported investing in stocks.

Consumer Credit Improvement

Improving credit profiles allow consumers to access loans and funds at better rates. The average FICO® Score increased by four points from 2019 to 2022, reflecting this positive trend.

Perception vs. Reality

The Federal Reserve’s annual Survey of Household Economics and Decisionmaking shows that most heads of households feel they are doing “at least OK financially.” However, this doesn’t align with the overall gloomy outlook many consumers have. This discrepancy may be due to the perception of marketplace disruptions as a net negative.

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