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Sentiment Sours as Consumers See Inflation Rising for Years to Come

consumer sentiment, inflation, economy, savings, paycheck to paycheck, November

Consumers’ expectations on the economy — and particularly inflation — continue to sour.

And they seem to be girding for price pressures to be firmly in place. 

To that end, the University of Michigan found in its preliminary results for November that overall U.S. consumer sentiment fell for a fourth straight month. 

The overall reading was 60.4 in November, down from October’s 63.8 level. 

The survey of “current” conditions stood at 65.7, down from last month’s 70.6. And in a sense of what’s to come — measured through the “expectations” index — that reading came in 56.9, down from 59.3 in October. 

These readings are at their lowest levels since May.

As for price increases, the Michigan study found that consumers’ expect inflation a year from now to stand at 4.4%, up from last month’s 4.2%. Looking out over five years, consumers expect a 3.2% inflationary increase, up from a five-year expectation of 3% as recently as last month. The newest five year survey, the University said, is the highest five-year level seen since 2011. 

In comments that accompanied the release, Surveys of Consumers Director Joanne Hsu said that as sentiment slipped 5% in November, “the long-run economic outlook slid 12%, in part due to growing concerns about the negative effects of high interest rates… overall, lower-income consumers and younger consumers exhibited the strongest declines in sentiment. In contrast, sentiment of the top tercile of stock holders improved 10%, reflecting the recent strengthening in equity markets. 

The Read Across 

In “New Reality Check: The Paycheck-to-Paycheck Report — The Savings Deep Dive Edition,” a PYMNTS Intelligence and LendingClub collaboration, we found that savings have been a dry powder that consumers have been tapping to manage inflationary pressures, but that dry powder is being depleted. 

That’s because inflation eats away at the purchasing power that’s on hand and in the bank. We found that “real” savings have slipped by low single digit percentage points.  

But the middle-income segment, which accounts for more than half of the population, has seen their readily available savings in real terms plummet by 18% in the last year. Earning $50,000 to $100,000 per year does not go as far as it used to, and what’s socked away does not go as far as we’d hope. Only a bit more than a third of consumers in the low- and mid-income brackets expect to see their savings increase.  

Separate PYMNTS Intelligence data shows that 85% of consumers don’t think their incomes will match inflation’s pace. And since a majority of consumers do not expect inflation to retreat to pre-pandemic levels until 2025 — prices have risen by more than 20% since 2019 — it make sense that the pressures and the less-than-sanguine outlook may lead to some additional belt-tightening in the months ahead.