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Understanding Consumer Sentiment: Pessimism and Optimism in Today’s Economy

Consumer sentiment has been notably low since 2021, a trend that might puzzle economists given the improving economic indicators. While we won’t settle the debate on the state of the economy here, we can highlight some trends that justify the current consumer sentiment and others that suggest the economy is in better shape than perceived.

3 Reasons for Pessimism

Several factors contribute to the persistent pessimism among consumers:

1. Inflation

Inflation continues to affect consumer moods. Many people have no recent experience with persistent inflation, which was last significant over 30 years ago. Although inflation cooled to 3% in June 2023, it will take more consistent data to convince consumers that prices are stabilizing.

2. Low Savings Yields

Savings yields are much lower than in the past. Even the best savings accounts offer rates barely exceeding 4% APY in 2023, compared to over 6% in the 1990s. This makes it harder for consumers to counterbalance declining purchasing power.

3. High Interest Rates

The Federal Reserve’s rate hikes to control inflation have increased credit card APRs by 5 percentage points, dampening consumer spending. Older consumers, who typically have less debt, are the only group maintaining or increasing their spending levels.

4 Shots of Optimism

Despite the pessimism, there are positive signs in the economy:

1. Low Unemployment

The national unemployment rate was 3.7% in May 2023, a level not seen since the late 1960s, indicating near-full employment.

2. Rising Wages

Wages are increasing, especially in the service sector, which traditionally pays less than manufacturing and office jobs.

3. Increased Savings

Americans have more money in their checking accounts than before the pandemic, according to data from Bank of America and JPMorgan Chase.

4. Investment Confidence

The percentage of Americans owning stock reached 61% in 2023, the highest since the 2008 recession, showing increased willingness to take investment risks.

Conclusion

While consumer sentiment remains low, several economic indicators suggest that the economy is not as dire as perceived. For any mortgage-related needs, feel free to call O1ne Mortgage at 213-732-3074. Our team is ready to assist you with confidence and expertise.

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