Luc F. Delorme | Money Talk: an objective look at the economy | Business

The Consumer Sentiment Index recently fell to an unprecedented level since late 2011. In other words, survey respondents feel less good about the economy right now than they do. never have been in the past decade.

According to the preliminary report by the survey’s chief economist, Richard Curtin: “Consumer confidence fell to its lowest level in a decade in early November due to escalating inflation rates and growing consumer demand that no effective policy has yet been developed to reduce the damage caused by soaring inflation. One in four consumers cited inflationary cuts to their standard of living in November, with lower incomes and older consumers expressing the greatest impact. “

Inflation has indeed increased. While an increase in inflation is somewhat expected in the wake of the pandemic, the rate of increase was unforeseen. According to the latest reading of the Consumer Price Index, prices rose 6.2% last year. Some items, like gasoline and used cars, experienced rapid increases well above average.

For those on fixed incomes or those still looking for a job, rapid price increases will have an impact on sentiment.






Used car sales

The author says that for those on fixed incomes or those still looking for a job, rapid price increases will have an impact on economic sentiment. Take the example of a retiree who wants to buy a used car. Used car prices have increased on average by more than 40% since mid-2020, and Social Security checks will not be able to keep up with that kind of growth.




Take the example of a retiree who wants to buy a used car. Used car prices have increased on average by more than 40% since mid-2020, and Social Security checks will not be able to keep up with that kind of growth. For these people, it makes sense that the feeling is poor.

On the flip side, objective factors like gross domestic product growth, unemployment, wage growth, home values, and the stock market all indicate a strong economy. The unemployment rate is still high from 2019 levels, but at 4.6%, the rate is well below the pandemic peak unemployment rate of almost 15%.

Nominal wage growth continues to post positive gains after a brief decline in mid-2020, and average hourly wages have accelerated this year. In other words, there are a lot of jobs and they are historically well paid.

When the data on consumer sentiment is dissected a bit more, a strange pattern begins to emerge. It is perhaps not surprising that survey respondents are heavily influenced by politics. They are not necessarily linked to objective economic conditions.

Return to Chief Economist Curtin: “The supporters aligned with the President’s party have adopted very positive moods, and those on the other side very negative moods. As a result, supporters of either president have mentioned or ignored rising home and stock values, rates of inflation and income growth, or mentioned or ignored the rates of employment or unemployment, etc.

In other words, people who support the current president generally feel good about the economy. Democrats are more likely to cite higher real estate values ​​and low unemployment.

Respondents who are against the current president feel worse than ever about the economy. Republicans are heavily focused on inflation. Survey results for Republicans show consumer sentiment is lower than it was during the depths of the financial crisis, when the economy was unequivocally worse than it is today. The partisan divide is perhaps more pronounced than ever.

The truth, of course, lies between these two extremes. Inflation hurts consumers. This can be of great concern, especially for the elderly and those with low incomes. It clearly has an impact on our everyday life in a very tangible way. However, the economy is generally strong. Unemployment is low and job vacancies are everywhere. Wage growth has accelerated so that most people are doing better, even after accounting for inflation.

Survey respondents tend to view the economy through a partisan lens. In 2018, when the economy was objectively good (strong GDP growth, low unemployment, high stock market, etc.), survey respondents who identify as Democrats were largely negative about the economy. There was an equally important difference between the responses of Republicans and Democrats.

Unfortunately, most people are no different from survey respondents. People don’t seem to be able to look at economic data objectively. This can lead to bad decisions, like deciding to buy or sell investments in response to what they “feel” about the economy or the president. Luckily you’re smarter than that.

About Andrew Estofan

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