Why Are Consumers So Pessimistic About the Economy?
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Here's your money briefing for Thursday, January 19th. I'm J.R. Whalen for The Wall Street Journal. December's retail sales reading coming in down 1.1%. It's just the latest sign that consumers are feeling jittery about reaching into their wallets.
The power of the American consumer's wallet really cannot be overstated. How people are spending their money creates a domino effect that ripples throughout the economy. It determines the budget for local businesses. It determines the supply of everything from vacuum cleaners to bikes.
On today's show, we'll talk with our reporter Rachel Wolf about economic conditions that have driven so much pessimism among consumers, and if there's good news that could turn consumers' collective frown upside down. That's after the break.
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What issue opens the episode and why is consumer confidence important to the economy?
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We often hear about consumer confidence, the mood of the consumer about the health of the economy, and how it affects their personal finances. Well, it turns out consumer confidence is low, and that could paint a bleak picture for the economy in 2023. WSJ reporter Rachel Wolf has been tracking the mood of the American consumer, and she joins me now. Hey, Rachel, thanks for being with us.
Thanks so much for having me on.
So, you know, Rachel, every month we get the reading about consumer confidence and consumer sentiment in the U.S. And to some people, that might seem like more of a minor statistic compared to inflation or the unemployment numbers that get a lot of the spotlight. But how consumers feel is actually really important to the economy.
It's true. It's not just some fluffy feelings reading. It predicts how consumers are going to spend their money, which of course is what influences whether the economy does well or less well in the first place. So inflation impacts consumer sentiment, but also consumer sentiment impacts inflation.
Yeah, many consumers were flush with cash during the pandemic with several rounds of stimulus checks and sweetened unemployment benefits. But it's been kind of a rough time for consumers as of late.
It's true. U.S. consumer sentiment reached an all-time low in June 2022, and it remains 15% below where it was a year ago. A year ago, we were still coming out of the pandemic, and things felt pretty bleak in many ways. And so the fact that now it is actually 15% below that says a lot about what consumers are feeling about their lives. financial futures and about their country's financial futures. So, you know, people truly do feel uncertain about their own and their country's financial futures. And that's due to factors like stubbornly high energy and food prices, the war in Ukraine, and, of course, lingering COVID-19 disruptions.
Yeah, definitely reasons for people to feel gloomy about the direction of the economy. But hourly wages have been rising as the competition for workers has heated up.
It's true that nominal wages did increase in many countries. However, they did not actually keep up with inflation.
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