Americans Head To The Polls Unhappy About The Economy
As Americans prepare to cast their votes in the 2022 midterm elections, they’re feeling lower than a gopher hole regarding the state of their finances.
“Leading up to the midterm elections, this week’s Ipsos-Forbes Consumer Confidence poll finds consumer sentiment sliding to its second lowest point of 2022,” said James Diamond, a senior research manager at Ipsos.
It’s little wonder why.
Food prices are growing at astronomical rates, while the price of gasoline has started climbing again. Overall inflation remains at sky-high levels, driving the Federal Reserve to hike interest rates even as a potential recession looms.
Higher rates are tanking the stock market, not to mention the value of most Americans’ main asset: their home. And mortgage rates are at their highest point in 20 years.
The economy’s one bright spot remains the job market, yet even there dark clouds are lurking. High-profile layoffs at major tech firms are a source of anxiety, while countless small businesses still can’t find enough help to meet demand.
That might be why Gallup polls have identified the economy as the No. 1 issue for Americans as they head to polls next week.
Consumer Confidence Is Weakening
The latest Forbes Advisor-Ipsos Consumer Confidence Survey paints a bleak picture of how Americans view their finances.
The overall consumer confidence Index dropped 1.2 points over the past two weeks, and is now not only almost 12 points lower than where it was before the pandemic but also 8 points lower than in January 2022.
This reading dovetails with other polls. For instance, the latest University of Michigan Consumer Sentiment Index shows that consumer confidence is down by approximately 40% compared to just before the start of the Covid-19 pandemic.
The September Gallup Economic Confidence Index was -35, almost 10 points lower than the beginning of 2022.
Component indexes of the Forbes Advisor-Ipsos survey illustrate the comprehensive worries Americans have about their pocketbooks:
- The Jobs Index is at 62, but that’s down 3.4 points over the past two weeks, which is the largest decline.
- The Current Index is at 36.9, down nearly 1.6 points from two weeks ago. It asks folks about how they feel about present conditions.
- The Investment Index is at 39.4, down 0.6 points over the past two weeks, despite the stock market’s modest rebound in October.
- The Expectations Index is at 57.4, but that’s 0.3 points below where it was two weeks prior. It shows Americans are feeling less optimistic about future trends.
A big reason why consumers are eating sorrow by the spoonful is inflation: 63% of Americans believe prices will keep rising. That’s eight percentage points higher than four weeks ago.
Consumers Are Struggling with Inflation
There’s a reason that Americans are concerned about inflation: It’s not going away.
The most recent consumer price index (CPI) showed that prices rose 8.2% in the 12 months to September. Some of the items experiencing the biggest increases over that time period—food and energy—are key budget items for most regular folks.
A more academic view of inflation, which strips out volatile food and energy prices, has shown very little improvement. The so-called core personal consumption expenditures price index (PCE), the Fed’s preferred metric, showed prices up 5.1% in September over the year prior.
That’s well above the Fed’s 2% target, and is even worse than the July reading, even after the Fed has jacked up interest rates by almost four percentage points.
Investors Are Worried
Rate hikes have spooked investors, with the S&P 500 down more than 21% so far this year. Bonds, which are supposed to act as a ballast in your portfolio, have dropped by an astounding 16% year-to-date.
Market participants had been hoping for a reprieve from the Fed’s hard medicine. Fed Chair Jerome Powell recently disabused traders of that notion, after the FOMC announced its third consecutive 75 basis-point interest rate increase.
“[H]e expressed disappointment that inflation is showing little signs of declining this year,” said Nanette Abuhoff Jacobson, global investment strategist at Hartford Funds. “Powell’s communication has been clear and risk assets haven’t fully internalized it: The Fed will defend against the policy mistake of the past (in the 1970s) when the Fed eased prematurely.”
Powell also has the luxury of raising rates while the labor market remains very tight. The unemployment rate is at just 3.5%, and there are almost 11 million open jobs. Basically, anyone who wants a job can find one.
Nevertheless, higher interest rates are hurting the bottom line of many companies, causing them to slim down their payrolls. Amazon recently announced it was freezing hiring of its white collar workers, while Lyft plans for a second round of layoffs that will result in 700 lost jobs.
While the job market for most Americans is robust, these jarring headlines are causing some to lose confidence. Until inflation starts to significantly moderate, and the Fed eases up on rate hikes, consumers will likely continue to be morose.