Gavin W. Stephens

Chief Investment Officer

May 15, 2024: Why Are Consumers Pessimistic?

Last week’s consumer sentiment report from the University of Michigan reaffirmed that consumers are feeling increasingly negative about the economy. These negative sentiments persist despite jobs growing at an average 242K jobs over the past six months and S&P 500 up 10% year-to-date. While it might be tempting to ask survey respondents to stop and smell the roses, it would be wiser to ask why consumers might feel so poorly about the economy and its path forward.


In our view, the cumulative effects of inflation following the pandemic-related lockdowns are a plausible explanation. Over the past three years, the price of food at home has increased 25%. The cost of rent has increased 23%. And while wages have also increased over this period, they have just barely kept pace with inflation. Since 1960, real, i.e., inflation-adjusted, incomes have grown at an average rate of 2%. As of the end of 2023, real per-capita income was $50,104—only $65 higher than three years prior.


In addition, last week’s report on consumer credit balances suggests that consumers are feeling less comfortable using debt to fund their spending. Credit-card balances increased only $152 million, the smallest monthly increase in three years.


In our view, the data suggest that the first quarter slowdown in growth was no aberration. While consumer spending proved surprisingly strong in 2023, the effects of higher prices and higher interest rates are beginning to take effect.


Weekly Market Update: May 15, 2024