Consumer Confidence Crumbles Amid Inflation and Income Woes


Consumer sentiment has plummeted to a seven-month low, as Americans grapple with persistent inflation and declining incomes. This stark decline, highlighted in the latest University of Michigan survey, underscores growing fears over the economic outlook. Despite modest gains in other economic indicators, the relentless squeeze on household budgets is eroding confidence. This downturn in sentiment reflects broader anxiety about the future, as consumers face the harsh reality of rising costs and stagnant wages, casting a shadow over the economic recovery.

The numbers: An early reading of U.S. consumer sentiment in June fell to the lowest level in seven months, reflecting lingering worries about high inflation as well as slower growth in household incomes.

The first of two readings of the consumer-sentiment survey dropped to 65.6 this month from 69.1 in May, the University of Michigan said Friday. The index has fallen three months in a row.

The index is also well below a prepandemic peak of 101.

Key details: A gauge that measures what consumers think about the current state of the economy sank to 62.5 from 69.6 and hit the lowest level since the end of 2022.

A measurement of expectations for the next six months also fell for the third month in a row to 67.6.

Consumers think inflation will average 3.3% in the next year, the same as in the prior month. The rate of inflation based on the consumer price index rose 3.3% in the 12 months ended in May.

Big picture: Middle- and lower-income Americans are more worried about inflation than wealthier households, the survey found.

Since less wealthy families tend to spend more of their income on necessities, any decline in spending could hurt the U.S. economy.

The Federal Reserve is aiming to reduce inflation to 2% annually by using high interest rates to slow the economy. But the Fed won’t cut interest rates until inflation falls slows further, making it harder for people to buy a car or house or for businesses to invest.

Looking ahead: “Consumers aren’t nearly as concerned about the inflation outlook today, but still appear skeptical about how easy it will be for the Fed to engineer an easing of inflation to the pre-pandemic 2% range any time soon,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors.

Market reaction: The Dow Jones Industrial Average DJIA and S&P 500 SPX fell in Friday trading.

This article originally appeared on Market Watch

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