Martha C. White for CNN Business
(CNN) – Consumer sentiment in August continued to rebound from its June low, but Americans’ feelings about the economy remain deeply depressed from a year earlier, weighed down by uncertainty about inflation and the labor market.
The country’s collective outlook has risen slightly this month, according to the latest consumer surveys from the University of Michigan released on Friday. The benchmark sentiment index rose to 55.1 from 51.5 in July, after falling to a record low of 50 in June when consumers felt jolted by soaring inflation and gasoline at $5 a gallon.
Gasoline prices retreated and a robust labor market created more than half a million jobs last month, but respondents’ outlook for current economic conditions nonetheless fell to 55.5 from 58, 1 in July.
Personal finance and consumer behavior experts say this is not surprising, given that much of our attitudes towards money are subjective and shaped by emotions.
“We ask people how they feel and ask them to predict the future, [and] we’re terrible at predicting the future when we’re feeling bad,” said Brent Weiss, co-founder of Facet Wealth, a financial planning company. “Consumer sentiment is a reflection of where we are now, not a predictor of the economy or the market. ultimate direction,” he said.
Even though gasoline prices have fallen significantly over the past two months, behavioral economists say much of the nation’s collective angst can be attributed to prices at the pump. Although gasoline makes up a small percentage of average household spending, those dollars still play an outsized role in people’s opinions of the economy, said Richard Lehman, assistant professor of behavioral finance at UC Berkeley Extension’s. the University of California at Berkeley.
“People tend to cling to one or two things that are dramatic for them and that they deal with every day,” he said. “Things that are in your face like gas prices tend to overweight each other.”
The University of Michigan also found that short-term inflation expectations remain pessimistic. “The share of consumers blaming inflation for eroding their standard of living remained close to 48%,” said Joanne Hsu, director of consumer surveys, in a statement accompanying the data.
Respondents expect inflation to be around 5% over the next 12 months, down from 4.6% expected a year earlier. But even a 5% inflation rate would imply a huge improvement over the current year-over-year inflation, which is still hovering at 8.5%.
The survey came ahead of the release of two critical inflation reports this week, both of which raised hopes that runaway price increases could slow. Survey respondents were anticipating an inflation rate of 3% in five years, a figure which, while still above the Federal Reserve’s desired benchmark of 2%, is exactly in the middle of the range. range of consumer expectations over the past year.
Economists are divided on whether, or how much, Americans’ often unspoken feelings about their finances or the economy are having an impact on consumer spending.
“It’s a conundrum, because the question is, what drives what?” said Michael Finke, professor of wealth management at the American College of Financial Services. “A lot of these effects happen at the same time.”
This can make it difficult to determine whether companies are laying off workers who then reduce spending, or whether it starts with people buying less in anticipation of being laid off, which can trigger the same domino effect of falling demand, encouraging companies to reduce their workforce. .
Although household balance sheets remain in a position of relative strength, there is a fear factor at work, said Tamara Charm, partner and head of the information function at consultancy McKinsey. “A lot of the pushback right now is that consumers are worried rather than consumers not having the money to spend.”
This means that – even if we don’t feel good about it – we can and will continue to spend on the things we need, although we may put off buying items like jewelry or electronics, especially if we have to put them on a credit card, given the rising cost of borrowing.
“I expect retail sales to continue their slower pace of growth and core goods to grow more than discretionary goods,” Charm said. “Psychologically, consumers pay more attention to their discretionary goods.”
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