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Consumers Defy Economists’ Optimism

Published on December 8, 2023

By Michael Bright

If you listen to economists, the financial condition of Americans is strong. The Federal Reserve board has paused in raising interest rates, they note, and price inflation has slowed. The dreaded recession that almost every economist was predicting has yet to materialize and might be avoided entirely.

Why, then, are people complaining about their financial lives? Consumer sentiment fell for the fourth straight month in November to 60.4 from October’s 63.8, according to the University of Michigan’s highly regarded survey.

The reason is simple. Economists and the average consumers don’t see things the same way. Individuals and families aren’t as impressed by statistics as PhD. economists are. They know how much things cost – and how that feels – and don’t pay as much attention to trends and historical data.

More to the point, an economist’s happy refrain that “inflation is slowing” still means that prices are rising. The actual cost of consumer items from milk to widescreen TVs have much more meaning than the latest, sterile-sounding change in the Consumer Price Index. For a lot of those items, the price is simply too high. If those prices go higher, that’s worse, not better, even if they get higher by less than the previous month.

Consumers are getting closer to maxing out on their credit cards. Utilization of and delinquency rates on credit cards are on the rise, according to Goldman Sachs analysts mentioned in the Wall Street Journal. The result could be a slowdown in Christmas-time spending – or spending soon thereafter – another sign of personal financial concerns.

Similar pain is being felt in homeownership. Home prices are high and have been that way for a while. Worse, interest rates have climbed and are likely to remain at an elevated plateau. Sure, the Fed might not increase rates again or right away. But would-be home buyers must live in a high-price, high-mortgage-rate world. And that’s not easy.

A few ivory-tower policies can be gleaned from real-life impacts. For example, government decision makers would be wise to champion laws and regulations that incentivize the building of more residences. Short supply is a major cause of excessive home prices. But the bigger lesson is that good economic news only sometimes translates into happy times around the kitchen table.