The ongoing government shutdown has significantly dampened consumer confidence, bringing it close to record lows. The University of Michigan’s sentiment index reported a decline to 50.3 in November, down from 53.6 the previous month. This figure hovers near the all-time low of 50 recorded in June 2022, a period marked by peak inflation post-pandemic.
Joanne Hsu, the survey’s director, noted that widespread concerns about the implications of the prolonged government shutdown have weighed heavily on consumer sentiment. The decline has been noted across various demographics, including different age groups, income levels, and political affiliations.
However, not all segments are experiencing this downturn in confidence. A notable exception is found among consumers in the top third of stock holdings, who reported an 11% increase in their sentiment due to the persistence of a strong stock market. This divergence underscores a growing disparity as stock market participation has expanded across a broader spectrum of the population over the past five years.
Interestingly, a prior analysis indicated that stock ownership among lower-income earners has surged. According to a survey from the BlackRock Foundation and Commonwealth, over 54% of Americans with annual earnings between $30,000 to $79,999 are now engaging in retail investment, with many starting in the last five years.
The data reflects a K-shaped economic recovery. Wealthier individuals continue to increase their spending, buoyed by rising asset prices, while those without investments are more likely to pull back on expenditures. This divergence is further illustrated by a separate report suggesting that consumer sentiment among stockholders has been recovering since May, contrasting sharply with the ongoing decline among non-stockholders.
The recent stock market volatility — showcasing the Nasdaq’s worst weekly loss since the trade tensions of April — adds another layer of complexity. Investors are increasingly wary of the sustainability of the AI boom, which some perceive as a potentially unstable bubble. Prior to this downturn, markets had celebrated a series of record highs, with the S&P 500 nearing the 7,000 marking.
Moreover, the relationship between asset prices and consumer behavior has intensified in recent years. A $1 increase in stock wealth now has a greater impact on consumer spending, generating a $0.05 marginal propensity to consume, compared to just a meager $0.02 in 2010, according to Oxford Economics.
The findings from the University of Michigan indicate that optimism about the economy seems to be concentrated among those who are actively participating in the stock market. While the views of higher-income consumers appear to buoy overall spending, the economic outlook remains subdued for much of the population facing inflationary pressures and broader uncertainties.
