US Consumer Confidence Rises, Inflation Still a Worry

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00:00Now let's talk about those confidence numbers. Joanne Hsu joins us from the University of

00:03Michigan, where she is the director of the surveys of consumers there. And this one looks

00:09particularly good, Joanne. Do I have that wrong? You know, just on the headline, the number beat

00:14expectations and was better than the prior reading, and inflation expectations are lower than the

00:20survey and lower than the previous readings. We're absolutely seeing some improvement from

00:26November. I think the inflation expectations numbers are definitely moving in a favorable

00:31direction, both in the short run and the long run. So that's definitely welcome news.

00:36We also saw a little bit of an increase in overall sentiment, but it's not large. And we're still at

00:42very low levels, historically speaking. So consumers are not feeling confident about the economy, but

00:47they're certainly feeling no worse. And they are starting to feel a little bit of relief on the

00:54inflation front, on the inflation expectations front. They're still expecting inflation to

00:59persist. Don't get me wrong about that. However, they're not feeling as pessimistic about it as

01:04they were in previous months. How much does this actually affect spending? Like when you look at

01:09the mood of the consumer or inflation expectations of the consumer, how much does that follow through

01:17into actual consumption decisions? One of the things that I think is important to look at

01:24our differences between now and the 2022, the height of the inflationary episode right after the

01:30pandemic. Now, historically speaking, when people feel confident about the economy, they tend to

01:35spend more. When they feel less confident, they tend to spend less. But in 2022, they felt very

01:40unconfident. But at the same time, they were willing to spend. The one key factor back then was that labor

01:47markets were incredibly strong and people felt very, very confident about their incomes. So even though they

01:52didn't feel great about high prices, they had the strong incomes to support strong spending. Right now,

01:59we're in a completely different situation where consumers across the board are telling us that

02:03labor markets are weakening. We have more than two thirds of consumers telling us that unemployment

02:08rates are going to rise in the year ahead. So the strong incomes that would normally support spending

02:14aren't really there now. Now, higher income people might still be willing to spend, but middle and lower

02:18income folks, they're likely to be looking for value. When you say middle income, I would think

02:24you're talking about the 50 percent, but I'm guessing it's more like the 80 percent, right? I mean,

02:28how does this break up in terms of quintiles? There isn't really a threshold here. It's sort of

02:34both an intersection of income as well as wealth. The highest wealth consumers with large stock

02:39portfolios, they have stable incomes. They also have large portfolio values with high stock market

02:47performance this year supporting spending. Folks with smaller portfolios or no portfolios at all

02:54or feel like their jobs are potentially threatened over the next year, they're the ones who are going

02:59to be less willing to go out on a limb to spend. They may still be willing to spend while they do have

03:05their jobs, but they're likely going to be looking for value and being choosy with where they spend

03:08their dollars. When you do look at the distribution of income, though, Joanne, I would imagine that the

03:13mean is way higher than the median. How far how far up is it? I mean, that that is always the case

03:21because the distribution of both income and wealth are highly skewed. And that's not specific to this

03:25moment. That's been that way pretty much since we started collecting data nationally about income.

03:30So it is true that that median income is much lower than the mean. And the folks at the top just have

03:38a lot more economic size to spend. And that's part of the reason why with aggregate spending,

03:44it's really the high income, high wealth folks that generate the lion's share of that.

03:48All right, Joanne, great speaking to you. Thanks very much for your time. And it was a valiant effort

03:52over the weekend in the big house. A lot of snow there. It's tough team to take on. At the beginning,

03:58I thought I was a little worried at the beginning that Michigan was going to have it. But being from

04:04Columbus, Ohio, I'm not unhappy about the outcome. Joanne Hsu there.

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