The bundle of raw nerve endings that is the American consumer in 2022 doesn’t seem to know quite which way to turn.
If it’s not the Omicron variant forcing people to lie low, it’s a massive rush of supply chain-driven inflation making them pay more.
As Omicron fades (fingers crossed) inflation will remain a pressing concern and especially for lower-income consumers — but it’s a problem for everyone as the world limps into year three of the coronavirus pandemic.
The University of Michigan’s closely watched Surveys of Consumers gauge of shopper sentiment inched down 2.5 percent to 68.8 this month for its second-lowest reading in a decade (the low point, of 67.4, was set in November).
The Sentiment Index averaged 70.3 percent over the past six months, down from 82.9 during the first half of 2021.
Richard Curtin, the Surveys of Consumers chief economist, said: “While the Delta and Omicron variants certainly contributed to this downward shift, the decline was also due to an escalating inflation rate. Three-quarters of consumers in early January ranked inflation, compared with unemployment, as the more serious problem facing the nation.”
Indeed, the nation is at or close to what is considered full employment, with an unemployment rate of 3.9 percent (although that picture is muddled with some workers sitting on the sidelines for a variety of reasons, from health concerns to better work-life balance and more).
Regardless, there are jobs. But the pay isn’t going as far with lower-income households, which are having to devote a larger percentage of their earnings to higher grocery bills and energy costs.
That income divide was particularly apparent in the consumer sentiment reading.
“Given that inflation’s impact is regressive, the Sentiment Index fell by 9.4 percent among households with total incomes below $100,000 in early January, but rose by 5.7 percent among households with incomes over that amount,” Curtin said.
“The same split was observed for prospects for the national economy, with lower income households more negative, and higher income households holding a more positive outlook,” he said. “Even among the more optimistic, they are still more likely to anticipate bad rather than good economic times in the year ahead.”
So far the consumer has held up amazingly well in the pandemic, bouncing back from the initial body blow and spending solidly (with the help of government stimulus) as they adjusted to the new reality.
But the new reality — so far — has become a holding pattern as the pandemic plays out.
Consumers made one big push for the holidays, but that might have now passed with prices shooting up on nearly everything, stimulus tapped out and interest rates set to move higher to fight off even more inflation.
After record sales gains last year, there were signs that momentum waned last month with people shopping earlier to make sure they could get their gifts and Omicron taking hold.
Total retail and food service sales in December slipped a seasonally adjusted 1.9 percent from November, where economists were looking for month-to-month sales to stay flat. Against a year earlier, sales were up 16.9 percent, according to the Census Bureau.
December sales at apparel and accessories stores fell 3.1 percent from November, but were up 29.5 percent from a year earlier. Department stores were down 7 percent from November and up 22.5 percent from a year ago.
Even e-commerce gave something back at the close of the year, with non-store retailers posting an 8.7 percent seasonally adjusted drop compared with November but a 10.7 percent increase over a year earlier.
While the cross currents are hard to read, it certainly feels like the industry has transitioned out of the somewhat oddball boom seen in 2021 and into something else.
The question is what that exactly is.
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