Opinion: What sluggish consumers could mean for the US economy next year


Unsurprisingly, the University of Michigan consumer sentiment survey collapsed when the pandemic first struck. What is surprising is that the latest survey shows sentiment remains as gloomy as it was at the start of the pandemic.
There are only a handful of times in the long history of the Inquiry where people have been so nervous. During all of these times, the economy was in recession. Indeed, recessions are always preceded by sharp declines in consumer confidence, because they are a collective loss of confidence in the future of the economy. People run to the proverbial bunker for shelter from the coming economic storm and in doing so kindle the storm.
But the economy is far from in recession – recent economic statistics are downright impressive. The economy has created over half a million jobs on average every month over the past year. Unemployment is falling rapidly and is not much higher than before the pandemic, and wages are rising sharply, especially for those in low-paying jobs. Many are much richer as the stock market has been setting all-year highs and house prices have skyrocketed from coast to coast. And this season is shaping up to be one of the best ever for retailers.
So why the current gloom? Obviously, it is the pandemic. The sentiment was hammered when the pandemic struck nearly two years ago and has sprawled ever since. What is particularly difficult to deal with was the Delta wave of Covid-19, as it dashed hopes that the vaccines, which were first rolled out around the same time last year, would end the pandemic. Remember President Biden’s “Summer of Freedom” against Covid?
Our freedom was short-lived. Too many Americans have refused to get vaccinated and take other precautions, and the virus has evolved. Delta is now giving way to the Omicron variant, which requires us to receive booster shots to avoid the worst of the virus, but too few of us have them. Delta, and now Omicron, make it clear that the pandemic is not over and that optimism about the pandemic was misplaced.
The recent surge in inflation is also puzzling, especially for many Americans who have no experience of rapidly rising prices. The last time inflation was high enough to be financially painful was almost 40 years ago, in the early 1980s. Baby boomers and their parents may remember the duty sting paying a lot more to fill up with gas or cook Christmas dinner, but the younger generations don’t have such a background.

The shock of the price increases is that they seem to come out of nowhere. Just a year ago, before vaccines and the complete reopening of the economy, many companies in the retail, travel, entertainment and personal services industries were still cutting prices in an attempt to attract customers and survive. The Delta wave of the virus changed all that, as it severely scrambled global supply chains and exacerbated labor shortages, forcing companies to raise prices.

Soaring gasoline prices only amplified the enormity of the price increase in people’s consciousness. It’s an award that many see multiple times a day, and it’s kind of a litmus test for their overall financial situation. Around Thanksgiving, when many people hit the road to visit their families, the nationwide price of a gallon of regular unleaded gasoline rose to over $ 3.50. Gas has been more expensive in the past, but not often.
People can also be afraid that not only will they pay much higher prices for almost everything, but there are some things that they cannot get at all, at least not quickly. Car dealership lots, which are as sterile as they’ve ever been, are a case in point. Even obtaining the parts needed for almost all types of household repairs is difficult. Sometimes it has also been difficult to find products ranging from consumer electronics and furniture to pet food and toys.
Our dysfunctional politics have also put a dark tint on the way we look at things. The question of whether our political party is in power has long influenced our perceptions. In the aftermath of Joe Biden’s presidential victory, Republicans became much more pessimistic and Democrats more optimistic. But the acrimony around the elections has apparently spilled over since. The January 6 insurgency and congressional investigation into it bear witness to this.

If my diagnosis of what’s plaguing the American psyche is about right, then we won’t be regaining our rhythm anytime soon. A fourth wave of the pandemic is already forming, this one being fueled by the Omicron variant, about which we still know little. And our acidic political discourse is more likely to worsen than to improve as the midterm elections draw closer.

But we should be getting relief from soaring inflation soon. Gasoline prices have fallen in recent weeks and are expected to continue to decline as global oil prices drop. Supply chains are slowly resolving their bottlenecks, and it looks like the worst worker shortage is behind us as labor market participation increases.

So what is it ? Will our gloomy mood slow the economy down, or will the strong recovery continue to prevail and ultimately lift our spirits? The latter remains more likely, but I say it with less and less confidence as the pandemic drags on and our politics become less civil.


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