Recent headlines about disappointing earnings reports and massive layoffs reaching beyond the tech sector have been hard to miss. But perhaps there is some reason for optimism when searching past the gloomy outlooks. Just as consumer sentiment and cautious shopping habits had offered hints about a possible pullback by examining consumers’ forward-looking sentiment, so it may again about when any sustained downturn could end. The most recent PYMNTS/LendingClub collaboration, “New Reality Check: The Paycheck-to-Paycheck Report,” examines surveyed consumers’ perceptions about their personal financial situation over the next 12 months.
Source: PYMNTS Consumer Inflation Sentiment: Perception Is Reality January 2023 N = 2,140: Whole sample, fielded Dec. 1, 2022 – Dec. 5, 2022
Although there was some fluctuation in the monthly consumer response about whether their financial situation would stay the same or worsen, the response rate of surveyed consumers has been generally climbing. The only exception was the sentiment dip in November, which was not only made up for with December’s rate but surpassed October’s high.
Surveyed consumers’ broader economic views follow similar trends when asked about recession expectations within the same time period.
Consumer expectations of both their personal financial situation and the greater economic landscape shift at nearly the same rate. In both cases, a peak of negative sentiment in November recedes again in December when consumer response to both their personal and the broader economic outlook seem brighter.
It is important to note that a brighter outlook is still relative, and consumers do not appear to naively believe all will immediately recover. PYMNTS data finds that 56% of consumers expect higher inflation in 2023, and we find that the average consumer doesn’t think inflation will hit the target of 2% until April 2024. Even that, however, is an improvement, as PYMNTS’ January report “Consumer Inflation Sentiment: Perception Is Reality” found that in December, consumers didn’t expect inflation to normalize until July 2024.
Source: PYMNTS Consumer Inflation Sentiment: Perception Is Reality January 2023 N = 2,140: Whole sample, fielded Dec. 1, 2022 – Dec. 5, 2022
But these are all just consumer feelings. How does that compare to the “hard” data furnished by government agencies like the Bureau of Labor Statistics (BLS) and Bureau of Economic Analysis (BEA)?
According to the BLS December Consumer Price Index (CPI), although the rate of two of the most important essentials, energy and food at home, are still rising relative to their seasonally adjusted prices a year ago, the pace at which prices for both have gone up are slowing down. In September, the CPI rate for food at home had rise 0.8% from the previous month. By December, that rate of growth had slowed to 0.3%.
Energy rates are seeing even starker recovery. While there was an October bump in prices, similar to the bump in negative consumer sentiment in November, energy prices have gone down since September. Its greatest drop was in December, was prices were down 4.5% from the previous month.
And while the BEA’s tracking of personal consumption expenditures (PCE) has indeed gone negative for two consecutive months, the dips haven’t been necessarily that stark if the classic definition of a recession is negative growth for two consecutive quarters — not two consecutive months.
Recent headlines shouldn’t be ignored. Economic cycles are called cycles for a reason and there’s clearly some market shedding. But its length isn’t predetermined, and consumer sentiment may indicate we could see sunny skies — or, at least, sunnier skies — again soon.
