Consumer sentiment deteriorated anew in October, the preliminary read on the University of Michigan’s gauge for this month showed.
After ticking higher from the decade nadir hit in August amid the Delta wave, the headline index fell to 71.4, short of consensus, which expected a modest uptick to 73.1.
Although not a disaster, the lackluster read on consumer psychology served as an unwelcome reminder that all is far from well in the world’s largest economy, despite blockbuster bank earnings, an upbeat read on retail sales and a reinvigorated equity market.
“Consumer sentiment has remained for the past three months at the lows first recorded in response to last year’s shutdown of the economy,” the survey’s Chief Economist Richard Curtin said Friday.
“The Delta variant, supply chain shortages and reduced labor force participation rates will continue to dim the pace of consumer spending into 2022,” he added.
Both the current conditions gauge and the expectations index declined (figure below). At least stocks are on the way back up.
Inflation concerns were paramount in the October survey. “Buying conditions for large household durables in early October were less favorable in only two other surveys,” Curtin noted. Those two surveys: April 2020 and during the depths of recession in May 1980.
“When asked to describe in their own words why conditions were unfavorable, net price increases were cited more frequently than anytime since inflation peaked at over 10% in 1978-80,” the survey went on to note. One-year inflation expectations moved up to 4.8%.
Notably, the survey flagged a loss of faith in Washington’s economic management. This is, of course, an issue I’ve discussed at length over the past six months, and especially over the past several weeks, a time period during which both Republicans and Democrats pushed the country to the brink of a technical default.
In itself, debt ceiling brinksmanship isn’t new, but what was particularly disconcerting about the most recent episode (which will be replayed in early December) was the extent to which neither side had any demands — it was sheer spite.
According to Curtin, that isn’t really the problem, though. “To be sure, the DC logjam, including the debates on the debt ceiling and the $3.5 trillion social infrastructure program did not help, but the staged drama was largely ignored by most consumers,” he said, noting that only 3% of respondents mentioned those issues when queried on the news cycle.
Instead, consumers expressed concern about the White House’s policy gamble. “The adage ‘never let a crisis go to waste’ mirrors the range and scale of Biden’s progressive proposals, but consumers see it as too risky a strategy,” Curtin said. Favorable assessments of economic policies dropped to just 19% this month.
Unfavorable assessments, by contrast, jumped to nearly 50%.
This is not, the survey suggested, simply a matter of partisanship, nor is it solely attributable to demographics. As Curtin concluded Friday, “the decline in confidence in economic policies was recorded across all age, income, and education subgroups as well as among Democrats, Independents, and Republicans.”
That, in turn, suggests the administration needs to do a better job in terms of messaging. Clearly, something is lost in translation.
Or who knows, maybe closing the wealth gap, pulling people out of poverty and repairing the nation’s frayed social fabric is too chancy. Better to go back to the halcyon days of January, when daily life was more staid and predictable. If you don’t include the mass death and armed rebellions.
What part of Biden’s plan do people think is risky, I wonder, the part where we try to fix the 60,000 bridges in this country we know are unsafe? The part where we try to fix the tens of thousands of miles of bad pipes we depend on so our taps work when we turn them on or the generally perilous condition of electrical grid so the US is taking on the conditions in underdeveloped countries where we have rolling blackouts in two of our most populous states. If we think current supply chain shortages are bad consider that the large transformers that manage transmission in our power grids are custom made and can’t be stocked so they would be available when needed. Replacing one of these key transformers can easily take two years and we don’t build most of them in the US. And of course, those bad pipes have to have water to fill them, something we have much less of than we did, especially in the west. What’s wrong with people? You can’t have society without public goods: roads, bridges, utilities, defense, postal service. It requires sacrifice from everyone to be part of a functioning society. Right now 65% of all households pay no income tax. Can’t do much for everyone if two-thirds of us are “free riders.”
Biden is now getting the Bernie treatment.
This is terribly ideological material to be sure. Issues involved have been in the can being kicked down the road for decades ( by both parties ) and it may be that the collective wisdom of the Electorate is that structural changes to this flawed political system are necessary before we venture forth with anything as contentious Biden’s agenda.. Geopolitics rules over Hubris and a three party system may be part of the solution to rectify some really bad attitudes among Elected officials from both parties. That’s the ‘virus’ more dangerous even than Covid.
Its the virus and the lack of any kind of consensus coming out of Washington. Americans feel the political system is broken. Who can blame them? For that matter there is a microphone of outlets, traditional and other media too pushing lies and misleading the public- and not just Fox or OneAmerica- but social media which is a conglomeration of ourselves. As Pogo said- we have met the enemy and it is us. Until or unless ideas become policy debates and not a way of stirring up hate in your tribe, we will be stuck in this zone. That is unless our nation breaks apart under the weight of lies and poor governance. Trump was/is a pestilence unleashed on us. It will take the better part of a decade to clear out the wreckage. That is if that is successful.
Jobs are unfilled despite wage increases, all over the economy. Anecdote: a teacher friend is warning that in our local school district, an acute shortage of regular and substitute teachers, school bus drivers, custodians, administrators has class sizes growing and principals/vice-principals teaching classes, and she thinks our district is nearing a crisis.
With the unemployed not taking the jobs on offer, it is politically not as good a time to sell the public on a large increase in social spending, as it would have been six months ago. The large majority of people are working, and their sympathy for the unemployed will erode rapidly as the latter (soon to be renamed “lazy bums”) get blamed for every shortage, closure, and inconvenience.
The left-most wing of the Democratic party overestimated both their leverage and their window of opportunity. I think the odds of the Democrats passing anything but the bipartisan “physical infrastructure” bill and a very watered-down version of the “social infrastructure” bill – not $3.5TR, more likely <$1.0TR – are fading fast. Manchin and Simena are becoming heroes to the right and even right-center, and no doubt being richly rewarded for it.
H-Man, fixing our infrastructure may be a project that is “to big to fail”.
No, it’s too big and requires more resources than people will sacrifice so it is “too big to succeed.”