Consumers have given up saving for the American Dream and are spending money instead
One economist offers an explanation for a paradox that emerged in recent data that showed spending remained strong even as consumers reported feeling pessimistic.
said Joanne Hsu, director of the University of Michigan’s consumer sentiment survey CNBC on Friday that she thinks Americans have given up on saving money plans because they see their financial goals seem less attainable and are spending money instead.
“This aggressive spending does not reflect some kind of secret feeling of confidence that consumers have,” he explains. “And instead, my interpretation is that consumers see that a lot of the aspirational goals that we talk about as part of the American Dream—owning a home, paying for college, paying for college for your kids, have a comfortable retirement—with high prices and high interest rates. At current prices, those aspirational goals are looking increasingly out of reach.”
And as a result, consumers have “given up” on saving for those goals, Hsu added, noting that the still strong labor market allows them to spend now.
The Latest reading of the University of Michigan survey showed sentiment fell to a six-month low of 67.4 in May from 77.2 last in April as Americans cited stubbornly high inflation and interest rates, as well as worries. are concerned that the unemployment rate may increase.
While that report was followed up a few days later by April’s consumer price index showed inflation cooling down it followed three consecutive months of unexpectedly high prices. Consumer-facing companies do has sounded the alarm about the impact of inflation and high interest ratesespecially for lower-income shoppers.
What is certain is that inflation has fallen sharply from a four-decade high of 9% in mid-2022 to 3.4% last month. But that means prices will rise more slowly rather than return to pre-pandemic levels, and the cumulative shock of the past few years still weighs on sentiment.
Meanwhile, a measure of consumer demand has increased. In the first quarter, it continue to promote GDP growth. And even though one reported weak retail salesAnalysts have noted a general trend that suggests continued spending.
Hsu warned that for now, consumers expect the strong labor market to persist, giving them the confidence to spend, but the latest data shows some factors have weakened.
“That could be an early sign of impending weakness for consumers. But for now, high incomes are supporting consumer spending,” she added.
However, the labor market also shows signs of cooling down after impressive achievements earlier this year. The Labor Department’s April jobs report was well below expectations, while the unemployment rate rose to 3.9% from 3.8% in March.
A further cooling in the job market is also possible helped push the Federal Reserve to start cutting interest rates, giving consumers a reason to be a little less harsh.
