Economists have been predicting a recession for months, but the labor market has remained resilient, wage growth is higher than before the pandemic, and inflation continues to drop, now at 4% compared to 9.1% in June of last year. Despite this good news, consumers don’t feel confident about the future, according to the consumer confidence index, which is at a six-month low.
The consumer confidence index fell to 102.3 in May from 103.7 in April. The present situation index, which shows how consumers feel about current conditions in business and labor, dropped to 148.6 from 151.8, and the expectations index inched down to 71.5 from 71.7. According to the Conference Board, an economic research and business membership organization that releases the index, an expectations index below 80 is associated with a recession within the next year. People aged 55 or older were especially pessimistic about the economy. The next consumer confidence survey results come out on June 27.
“The technical term for the type of economy that we’re in now is weird,” said William Hauk, associate professor of economics at the University of South Carolina. “On the one hand, there’s a lot of very good news. We have a very low unemployment rate, really almost historically low at this point. The job market is doing well. At first, coming out of the pandemic, some people were concerned that the low unemployment rate was driven in part by low labor force participation. But that’s really kind of caught up to where it was in pre-pandemic terms.”
Although inflation is easing up, consumers are still paying more at the store than they’re used to paying in recent history, Hauk said. A lack of affordable housing, the Federal Reserve’s raising of interest rates before the survey ended, and news about bank failures and policymakers’ discussions over the debt ceiling may have all contributed to a gloomier outlook, economic experts said.
“Since the late ’80s to the ’90s, and 2000s, really, up until the last couple of years, we got used to having an inflation somewhere between 0% to 2% a year,” Hauk said. “So 4%, even though that’s certainly better than 8% or 9%, that’s higher than people are used to. I think it makes people feel kind of grumpy when they’re going to the grocery store, filling up their cars with gas and a lot of the other, you know, day-to-day purchases that they make, so I think that’s a big thing that’s dragging down consumer confidence.”
Why does the consumer confidence index matter? Economists and other economic experts say it’s a useful, if imperfect measure because it can provide information about future consumer behavior, which affects the economy. About 70% of the GDP is consumer spending.
“If consumers are nervous, that can mean less spending on the part of households and as a result that would make a recession more likely,” Hauk said.
