Consumers Feel Glum About the Economy: The Kiplinger Letter

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Consumers feel glum and pessimistic about the economy surveys, including the December data from the University of Michigan’s survey of consumers, show. But they’re spending as if they feel pretty good. Why the disconnect? For starters, the economic disruptions of recent years. First, pandemic lockdowns that crashed the economy and then soaring inflation have likely left many people feeling uncertain and wary about what comes next.

Also, bad news headlines and political polarization may be leading consumers to feel that the overall outlook is bad, even if their own finances aren’t so dire. If so, the Conference Board’s reading on consumer sentiment may gradually trend higher than the University of Michigan’s survey, since the former poll asks more questions about a respondent’s personal situation.

A little pessimism is justified, as the economy is slowing. But not too drastically, if the labor market is any guide. November’s jobs report showed 169,000 net new jobs, once you subtract striking workers who returned to their jobs in November after being counted as unemployed while out on strike in October. That’s a slight downshift from October’s job creation pace of 182,000, but still decent.

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Wages grew at a 4% annual rate, which is good for workers but not good for lowering inflation.

One reason job growth is solid is the brisk state and local government hiring. The public sector has been slower to rebound from the job losses of the pandemic than private employers. Schools, for instance, have struggled to find new teachers. So, government payrolls just eclipsed their prepandemic high for the first time this October.

That belated boost in hiring is helping to keep the overall job market relatively sound. Expect state and local agencies to keep hiring through 2024 before slowing in 2025. In general, their finances are strong due to federal aid and high tax revenues.

This forecast first appeared in The Kiplinger Letter, which has been running since 1923 and is a collection of concise weekly forecasts on business and economic trends, as well as what to expect from Washington, to help you understand what’s coming up to make the most of your investments and your money. Subscribe to The Kiplinger Letter.

David is both staff economist and reporter for The Kiplinger Letter, overseeing Kiplinger forecasts for the U.S. and world economies. Previously, he was senior principal economist in the Center for Forecasting and Modeling at IHS/GlobalInsight, and an economist in the Chief Economist's Office of the U.S. Department of Commerce. David has co-written weekly reports on economic conditions since 1992, and has forecasted GDP and its components since 1995, beating the Blue Chip Indicators forecasts two-thirds of the time. David is a Certified Business Economist as recognized by the National Association for Business Economics. He has two master's degrees and is ABD in economics from the University of North Carolina at Chapel Hill.