U.S. Consumer Sentiment Falls to New Series Low
Key Takeaways
Morning Consult’s daily Index of Consumer Sentiment hit a series low this past week — 78.0 as of May 23, 2022 — dropping below previous lows reached on March 14, 2022, and April 7, 2020.
The recent deterioration in consumer sentiment fits into a broader downward trend that began in the fall of 2021 as inflation fears began to rattle consumers.
This low and falling level of confidence suggests that consumers increasingly fear a recessionary environment.
Consumer sentiment in the United States has hit a new low, as Americans have become increasingly worried about inflation and the possibility of an economic downturn. Morning Consult’s Index of Consumer Sentiment (ICS) dropped to 78.0 on May 23, with confidence trending steadily lower since the summer of 2021. The ICS is now 9.6 points below its mark at the start of 2022 and 24.4 points below a pandemic-era high reached in May 2021.
The decline in confidence has been driven by decreases in all five components that make up the ICS. U.S. adults are the most pessimistic about future business conditions, with the index’s five-year and 12-month business conditions expectations components at 62.4 and 72.4, respectively, as of May 23. Expectations for business conditions over the next 12 months have declined especially rapidly, falling 12.2 points (14.4%) since the beginning of the year.
Not all Americans are as pessimistic though, as consumers of different ages view the U.S. economy through different lenses. Consumer sentiment among younger adults has yet to materially decline, with the ICS among adults ages 18 to 35 essentially remaining flat in recent months. However, sentiment among adults ages 45 to 64 and ages 65 and over has fallen dramatically.
There are numerous reasons why older Americans might be feeling more downtrodden. Rising prices will have more of an impact on retired people living on fixed incomes. Older Americans are also more likely to possess financial assets and housing exposed to market volatility. Health risks from COVID-19 are also more acute among the elderly, weighing on sentiment. In addition, older Americans are the only ones who have lived through past periods of high inflation — and unlike younger adults, they know the hardships rapid inflation can bring.
However, the gaps across income groups and education cohorts have narrowed, with the ICS falling more for adults with higher household incomes and greater educational attainment since October 2021. As was first reported in the Morning Consult/Axios Inequality Index, confidence fell more among consumers living in households with higher annual incomes.
Inflation has already begun to impact Americans’ spending habits. Consumers, particularly those from lower-income households, have begun to switch to cheaper substitutes when faced with sticker shock. Moving forward, rising prices and financial volatility will threaten to slow consumer spending growth. As such, consumer concerns over an economic downturn and associated belt-tightening may become a self-fulfilling prophecy.
Jesse Wheeler previously worked at Morning Consult as a senior economist.