Americans’ Economic Mood Brightens—a Bit
Wall Street Journal
By Justin Lahart and Rachel Wolfe
Updated Aug. 31, 2024 12:01 am ET
The American consumer is starting to shake out of a lingering bad mood.
When The Wall Street Journal asked 1,500 voters in late August for their feelings about the economy, 34% said it is improving, up from 26% in early July. The share who thought the economy was worsening fell to 48% from 54%.
“Sentiment is drifting up,” said Joanne Hsu, who oversees the University of Michigan’s consumer sentiment gauge. That closely watched measure rose 2.3% since July, the university said Friday, driven by an uptick in people’s expectations of how the economy will fare in coming months.
The Conference Board, a business research organization based in New York, similarly said on Tuesday that its consumer confidence index rose in August from July, matching its highest level since February. Gallup on Friday said that its index of economic confidence rose in August, too, hitting its best level since March.
Consumers are still much less buoyant on the economy than they were before the pandemic. But a variety of factors seems to be driving an improvement in American moods, including lower gasoline prices, a decline in mortgage rates ahead of an expected Federal Reserve interest-rate cut in September, and a buoyant stock market.
Falling inflation
For the past few years, rising prices have soured the American consumer psyche. This week’s data suggests that while consumers are still unhappy about how much everyday goods and services cost, they seem to be aware that inflation has slowed.
The Commerce Department on Friday reported that its measure of consumer prices—the Federal Reserve’s preferred inflation gauge—was up 2.5% in July from a year earlier, well off the 7.1% it registered in July 2022.
At the pump, prices have fallen. A gallon of regular fetched $3.31 on average as of Monday, according to the Energy Information Administration, compared with $3.81 a year earlier.
Mortgage rates have also eased: Freddie Mac reported Thursday that the average rate on a 30-year fixed mortgage was 6.35% in the latest week, down from this year’s high of 7.22% hit in early May, and the lowest level since April of last year.
The stock market, too, has rebounded from its late July and early August drop, bringing the Dow Jones Industrial Average to a record closing high Friday.
Meanwhile, Americans continue to spend.
The Commerce Department on Friday reported that consumer spending rose 0.5% in July from June. That put it up 5.3% from a year earlier—or 2.7% after adjusting for inflation. The Commerce Department on Thursday revised gross domestic product growth for the second quarter higher largely on the strength of consumer spending. Economists expect third-quarter spending will remain solid, and several revised their third-quarter GDP estimates upward on Friday.
A weaker-than-expected July jobs report from the Labor Department earlier in the month didn’t end up having much of an effect on people’s views about their own prospects.
“Consumers are hearing increasingly negative views about labor markets, but they don’t seem all that worried about it,” said Hsu. The Michigan survey showed worries about job loss were stable between July and August, hovering near the historical average. Income expectations also remained unchanged.
Economists polled by the Journal estimate that next Friday’s employment report will show a rebound, with the U.S. adding 162,000 jobs in August after July’s somewhat disappointing gain of 114,000 jobs.
Restrained optimism
Still, measures of confidence remain well below prepandemic levels, to the consternation of some economists.
“Spending and incomes have generally been healthy. Overall GDP growth has been healthy. But you haven’t seen that positive environment reflected in sentiment data,” said Vanguard senior economist Josh Hirt.
Hirt expected mindsets to have improved even more by now. But sentiment measures can get stuck on both the way up and the way down. “There’s a bit of persistence that can happen,” Hirt said.
In 2018 and 2019, economic expectations were stubbornly high. Now, he said the opposite could be true.
“The way we’re looking at it more importantly, consumers are still voting with their dollar, they’re still spending,” he said.
To an increasing degree, views on the economy have become a matter of politics. The Michigan survey showed that consumer sentiment among Democrats fell sharply following President Biden’s poor debate performance against Donald Trump in late June. But in August, following Vice President Kamala Harris’s move to the top of the ticket, Democrats’ sentiment snapped back. Republicans’ views moved in the opposite direction.
Sentiment among independents rose slightly, in line with the national average. That could in part reflect improved moods among those who lean Democratic, or just a sense that they have more of a choice in November.
“Independents are reserving judgment right now,” said Hsu.
Stanford University professor Neale Mahoney and researcher Ryan Cummings argue that inflation has a sort of half life when it comes to sentiment readings. People focus on the level of prices they are paying now versus what they remember paying, rather than year-over-year changes. Memories of what prices were before the pandemic—the Commerce Department’s price measure is up 18.3% since December 2019—are only slowly fading.
Cummings thinks the Covid-19 pandemic might still be influencing people’s views of the economy, since so much of the experience—shutdowns, the massive increase in unemployment, shortages—was intertwined with the economy. Other events, such as Russia’s invasion of Ukraine, the U.S. pullout from Afghanistan, and now, a bitterly contested presidential campaign, have also been unsettling.
“To some extent, maybe now people are mapping their experience of other things onto the economy,” said Cummings.
By Justin Lahart and Rachel Wolfe
Updated Aug. 31, 2024 12:01 am ET
The American consumer is starting to shake out of a lingering bad mood.
When The Wall Street Journal asked 1,500 voters in late August for their feelings about the economy, 34% said it is improving, up from 26% in early July. The share who thought the economy was worsening fell to 48% from 54%.
“Sentiment is drifting up,” said Joanne Hsu, who oversees the University of Michigan’s consumer sentiment gauge. That closely watched measure rose 2.3% since July, the university said Friday, driven by an uptick in people’s expectations of how the economy will fare in coming months.
The Conference Board, a business research organization based in New York, similarly said on Tuesday that its consumer confidence index rose in August from July, matching its highest level since February. Gallup on Friday said that its index of economic confidence rose in August, too, hitting its best level since March.
Consumers are still much less buoyant on the economy than they were before the pandemic. But a variety of factors seems to be driving an improvement in American moods, including lower gasoline prices, a decline in mortgage rates ahead of an expected Federal Reserve interest-rate cut in September, and a buoyant stock market.
Falling inflation
For the past few years, rising prices have soured the American consumer psyche. This week’s data suggests that while consumers are still unhappy about how much everyday goods and services cost, they seem to be aware that inflation has slowed.
The Commerce Department on Friday reported that its measure of consumer prices—the Federal Reserve’s preferred inflation gauge—was up 2.5% in July from a year earlier, well off the 7.1% it registered in July 2022.
At the pump, prices have fallen. A gallon of regular fetched $3.31 on average as of Monday, according to the Energy Information Administration, compared with $3.81 a year earlier.
Mortgage rates have also eased: Freddie Mac reported Thursday that the average rate on a 30-year fixed mortgage was 6.35% in the latest week, down from this year’s high of 7.22% hit in early May, and the lowest level since April of last year.
The stock market, too, has rebounded from its late July and early August drop, bringing the Dow Jones Industrial Average to a record closing high Friday.
Meanwhile, Americans continue to spend.
The Commerce Department on Friday reported that consumer spending rose 0.5% in July from June. That put it up 5.3% from a year earlier—or 2.7% after adjusting for inflation. The Commerce Department on Thursday revised gross domestic product growth for the second quarter higher largely on the strength of consumer spending. Economists expect third-quarter spending will remain solid, and several revised their third-quarter GDP estimates upward on Friday.
A weaker-than-expected July jobs report from the Labor Department earlier in the month didn’t end up having much of an effect on people’s views about their own prospects.
“Consumers are hearing increasingly negative views about labor markets, but they don’t seem all that worried about it,” said Hsu. The Michigan survey showed worries about job loss were stable between July and August, hovering near the historical average. Income expectations also remained unchanged.
Economists polled by the Journal estimate that next Friday’s employment report will show a rebound, with the U.S. adding 162,000 jobs in August after July’s somewhat disappointing gain of 114,000 jobs.
Restrained optimism
Still, measures of confidence remain well below prepandemic levels, to the consternation of some economists.
“Spending and incomes have generally been healthy. Overall GDP growth has been healthy. But you haven’t seen that positive environment reflected in sentiment data,” said Vanguard senior economist Josh Hirt.
Hirt expected mindsets to have improved even more by now. But sentiment measures can get stuck on both the way up and the way down. “There’s a bit of persistence that can happen,” Hirt said.
In 2018 and 2019, economic expectations were stubbornly high. Now, he said the opposite could be true.
“The way we’re looking at it more importantly, consumers are still voting with their dollar, they’re still spending,” he said.
To an increasing degree, views on the economy have become a matter of politics. The Michigan survey showed that consumer sentiment among Democrats fell sharply following President Biden’s poor debate performance against Donald Trump in late June. But in August, following Vice President Kamala Harris’s move to the top of the ticket, Democrats’ sentiment snapped back. Republicans’ views moved in the opposite direction.
Sentiment among independents rose slightly, in line with the national average. That could in part reflect improved moods among those who lean Democratic, or just a sense that they have more of a choice in November.
“Independents are reserving judgment right now,” said Hsu.
Stanford University professor Neale Mahoney and researcher Ryan Cummings argue that inflation has a sort of half life when it comes to sentiment readings. People focus on the level of prices they are paying now versus what they remember paying, rather than year-over-year changes. Memories of what prices were before the pandemic—the Commerce Department’s price measure is up 18.3% since December 2019—are only slowly fading.
Cummings thinks the Covid-19 pandemic might still be influencing people’s views of the economy, since so much of the experience—shutdowns, the massive increase in unemployment, shortages—was intertwined with the economy. Other events, such as Russia’s invasion of Ukraine, the U.S. pullout from Afghanistan, and now, a bitterly contested presidential campaign, have also been unsettling.
“To some extent, maybe now people are mapping their experience of other things onto the economy,” said Cummings.
