People are getting more pessimistic about their own financial outlook for the year ahead, according to the latest Survey of Consumer Expectations from the Federal Reserve Bank of New York.
More than a quarter of households surveyed are expecting their financial situation to deteriorate considerably in the coming year. A growing number expect to be spending more and believe it will get increasingly hard to access credit. Fewer Americans say they’re likely to quit their job voluntarily this year, partly because they expect unemployment to rise.
In economics, the consumer is not always right. Ben Harris, vice president and director of economic studies at Brookings said, take the last couple of years: By almost any measure, the economy has been strong.
“Unemployment has been historically low. The stock market is growing. Economic growth has been continuing,” he said. “We would have expected that people’s outlook, all in all, would be relatively positive.”
Instead, consumers have been feeling pretty negative. He said there’s been a real mismatch between sentiment and reality.
“Middle part of 2022, for example, people were just as down on the economy as they were during the great financial crisis, even though the economy in 2022 was doing so much better,” Harris said.
Consumers then were also saying one thing — that they were worried about the economy — and doing another — continuing to spend like they weren’t worried.
“Just because folks say they’re unhappy about the state of the economy, that doesn’t mean much,” said Justin Wolfers, an economics and public policy professor at the University of Michigan.
He said it’s important to distinguish between how people feel about “the economy” broadly and how they feel about what’s happening in their own lives.
“Because what folks are expert in is not the aggregates, GDP and the unemployment rate, but their own household economies,” he said.
In the last couple of years, when people said they were worried about the economy, Wolfers says they meant they were worried about the headlines of the national economy, not their own household economies.
But this latest survey from the New York Fed shows people are increasingly concerned about their own financial futures. Vicki Bogan, a professor of public policy at the Sanford School of Public Policy at Duke University, said that is worth watching.
Because if people are worried about their own bills and job prospects?
“They’re less likely to spend … they’re more likely to save money. When they’re reducing their spending and saving more, what is it going to do? It’s going to reduce the demand for goods and services. When consumers reduce their demand for goods and services, business sales are going to decline,” she said.
Which is why, when consumer expectations fall, there’s always the possibility an economic slowdown could be coming.
There’s a lot happening in the world. Through it all, Marketplace is here for you.
You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible.
Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.
