People Are Losing Hope | Joanne Hsu

Too-high cost of living is destroying consumer confidence

If you listen to the politicians and the headlines, you'll hear a lot of talk about the "strong consumer" who is keeping the economy happily chugging along.

But when we hear from actual consumers themselves, we hear a very different story.

The majority of households are struggling under the surge in their cost of living post-COVID. Many express despair that the American dream is now beyond their reach.

For a detailed dive into this critical topic, we're fortunate today to speak with Joanne Hsu, director of the widely-followed University of Michigan's consumer sentiment survey.

The UMich data indeed shows that a growing majority are giving up hope they'll ever be able to afford the traditional middle class lifestyle of a car, home, and eventual retirement.

To hear why, click here or on the image below:

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Adam’s Notes: Joanne Hsu (recorded 6.17.24)

EXECUTIVE SUMMARY

• Current consumer sentiment is below average, despite strong labor market indicators and GDP growth. Sentiment was on an upward trajectory since mid-2022 but stalled in 2023 and declined by 10% in May and June 2024. Why? Because consumers report feeling weighed down by high prices and express uncertainty around their future financial prosperity.

• Oddly, consumer surveys indicate positive views about the unemployment rate, job security, and future income growth, but consumers do not expect their income growth to outpace the rate of inflation. Even with expect wage growth, hey believe they are falling further behind the rising cost of living.

• The survey reveals a significant bifurcation of wealth in society. Higher-income consumers are less affected by high prices and own assets that have rocketed higher in price over the past several years — so it’s little surprise this cohort has seen improvements in sentiment since mid-2022. In contrast, middle and lower-income groups continue to struggle, reporting that the high cost of living has significantly impacted their financial well-being. This wealth disparity has existed for a long time but was temporarily reduced during the pandemic due to wage gains among lower-income individuals, although high inflation has since eroded the benefits of these gains.

• Consumers express concerns about