Consumer confidence plummets to record high amid rising inflation

Rising inflation continues to frustrate consumers, who are tired of spending more and more — and become increasingly despondent.
Record gas prices have weighed on consumer confidence index from 58.4 in May to 50.2 in June – the lowest recorded level since the university began collecting data on consumer confidence in November 1952.
The preliminary reading is similar to the low reached during the 1980s recession, wrote Joanne Hsu, director of the University’s Surveys of Consumers. In May 1980, the sentiment measurement reached 51.7, according to historical data.

The final reading for June will be published on June 24.

All components of the index fell, Hsu said, noting a 24% drop in the outlook for the coming year in business conditions and a 20% drop in consumer ratings of their personal finances.

About 46% of consumers surveyed blamed inflation, up from 38% in May, Hsu said.

“This share has only been crossed once since 1981, during the Great Recession,” she said. “Overall, gas prices weighed heavily on consumers, which was no surprise given the 65 cents increase in national gas prices last month.”

Half of consumers mentioned gas prices during the interviews, she said.

Consumer confidence has fallen in recent months ongoing and nagging inflation, as well as broader economic volatility brought on by an ongoing pandemic and the Russian invasion of Ukraine.
Despite this, Americans have continued to spend, the labor market has remained strong and unemployment has been low for nearly half a century.

“Consumer spending has long defied swings in consumer confidence,” said Greg McBride, Bankrate’s chief financial analyst. “What we’re likely to see this time around isn’t consumers cutting back on spending, but spending differently. This is an environment where necessities eat up more and more of a household’s disposable dollars.”

How consumers react from here can help or hurt the Federal Reserve’s efforts to curb inflation, Kurt Rankin, the PNC’s senior economist, wrote in a note.

“Consumers will choose to continue spending despite higher prices, making the Fed’s choices more difficult in the second half of this year, or to withdraw spending in response to higher prices – especially with regard to daily necessities. “, he said. “A slump in spending would slow the economy more on the immediate horizon, but could make all the difference in reducing the depth of a potential recession in 2023 by making the Fed’s job a little easier.”

The Fed is expected to raise its benchmark rate by at least another 50 basis points during its policy-making meeting next week.

Leave a Comment