Americans Are Grumpy About Prices. Why Are They Still Spending?

[MUSIC] Americans are really unhappy about the economy. But just how unhappy? Well, there's actually data on that. Because economists like to measure everything, even feelings. [MUSIC] >> They put out a survey where they go out and they ask questions by a bunch of people. >> That's our colleague, Gene Whalen. >> She's talking about something called the Consumer Sentiment Index, which is put together every month by the University of Michigan. >> They're pretty simple questions. Do you feel better off or worse off financially than you were a year ago? And then looking ahead, do you think that a year from now, you'll be better off or worse off financially? Just kind of broad questions like that. >> According to this survey, consumer sentiment reached its lowest point ever earlier this year. And it's barely budged since. So the index results in September were pretty low. The index landed at 48.1 and it's been falling generally throughout this year. So things are trending downward. [MUSIC] >> Economists pay close attention to consumer sentiment, because it usually predicts how much people are willing to spend. When people feel good about the economy, they typically spend more. And when they're feeling pessimistic, they tend to tighten their belts. But Gene says that right now, there's something strange going on in the data, something economists have rarely seen before. >> Consumers are angry. They are feeling really bad, but they're still going out and spending a lot. Since the pandemic, these two things have really decoupled a lot. The sentiment keeps going down. >> So when you see these things decoupling, how consumers feel about the economy and what they're actually spending, what questions does that raise? >> Clearly something has changed in the minds of the American consumer. And that's something that economists are trying to figure out what exactly has changed. [MUSIC] >> Welcome to the journal, our show about money, business, and power. I'm Ryan Knudson. It's Thursday, October 15th. [MUSIC] Coming up on the show, Americans are worried about the economy. So why are they still spending? [MUSIC] The reasons people are upset about the economy are pretty well understood. Everything is expensive from housing, to college, to insurance, to gas prices. An inflation picked up again in September, and yet people are still spending. >> So of course, consumer spending is rising because prices are higher. We all know that, we're all paying more for things. But leaving inflation aside, we're also increasing the volume of stuff we're buying. We are also buying more stuff. So consumer spending is rising both because prices are higher and because we're still buying more stuff. >> To better understand why, our colleague, Gene Whalen, made a kind of sentiment survey of her own. By going outside and talking to people in her neighborhood. [MUSIC] >> I live on the north side of Chicago, somewhat near one of the main shopping corridors called Clark Street in Andersonville. It's a place where young professionals live, young families, people who do have disposable income. It was a rainy Thursday afternoon, maybe around three o'clock in the afternoon. But there were people out buying stuff. And I went to a number of stores and restaurants tasks. Why, what prompted them to be there? [MUSIC] >> One of the shoppers, Gene spoke to, is Alice Whithart, who's 65 years old. >> So you're looking for sofa. I'm looking for a sofa. I'm also looking for a coffee table and two side chairs. >> So yeah. >> I found Alice at a nice furniture shop called District. And she was there after having lunch with a friend. And she was looking for a whole new living room basically to replace her aging furniture at home. >> I've lived with my old stuff for a long time and it's time for a refresh. >> Okay. >> Also, my sofa really is threadbare. >> I asked her a bit about what her budget was. And she said, I don't really have a budget, it's kind of whatever it's worth to me. >> Do I have a budget? Not really, you don't. >> I don't mean I have unlimited money, but it's whatever it's worth to me. >> Okay, yeah, you can sort of spend money. >> You know what I'm going to see it, yeah, yeah. >> I want a quality sofa, okay. >> What does Alice do for a living? >> She's a retired lawyer. So she was a lawyer for the state of Illinois, so not partner making a billion dollars a year. Whatever those partners make these days, not a billion obviously. >> Yeah. >> But someone who was making decent money and has a good pension and is able to afford a nice lifestyle. So she has money to spend and she was there to spend it. How does Alice feel about the economy? >> She's not thrilled about it. At the same time that she was there ready to spend all this money, she was saying, prices are really high. I went out to lunch with my friend just now and we were talking about how everything is twice as expensive now and her friend was there nodding along and also kind of annoyed by this. >> We were chatting about how expensive going out to eat is, I don't think it's right now. >> Yeah. >> It is insanely expensive. But I was just in Hawaii where everything is even more expensive, so I guess it's all relative. >> Yeah, yeah, yeah. >> Alice told Jean that even though she sees that everything is more expensive, she's still spending a lot on travel in her retirement. >> I've been Vietnam, Japan, England, New York State. >> For fun. >> I don't know. >> Yeah. >> Morocco was-- >> Yeah. >> Yeah, yeah, yeah. So that's this year. Yeah. So this is what I like to do. >> All of those were this year except for Morocco. >> Yes. >> Wow. >> Okay. >> I know. >> So she said she doesn't really limit herself. It's not like she's going out and buying yachts and things, but she has enough money to do the things that she wants in life even as she is annoyed by higher prices. >> So what does Alice represent? Do you think then? >> Alice represents what is one of the big drivers of the economy and of consumer spending at the moment, which is older people who are pretty well off financially. You know, they have decent sources of income. They have, in many cases, growing sources of wealth and those sources of wealth give them the confidence to go out and spend. >> One reason that some older Americans are feeling more confident is that some of their assets are appreciating in value, things like stocks and real estate. >> The stock market surge of the past several years driven largely by AI-related companies is enormous and has provided enormous wealth to a big chunk of upper income or upper tier folks in the US economy and equally housing values in a lot of places have really soared. So people who were lucky enough to have bought a home before the pandemic, before prices really started to surge are now sitting on a lot more wealth than they were before so that the wealth gap is really widened enormously in the country. >> The stock market is experiencing an incredibly long stretch of growth. The S&P 500 is up 75% over the past five years. >> I know the stock market is not the economy. It's one of the things that has been drilled into me for a long time, but it does still affect the economy in some way. So does the stock market going up like this? Does it have an impact on the way people spend? >> It definitely does. Yeah, we've heard that time and again that when people have a 401(k) that is worth 3 million today and it was worth 1.5 million several years ago, they think, "Boy, I'm a lot wealthier now because they are," and maybe I'm not going to take money out of that 401(k) right now, but I am going to go out and buy that car. >> Maybe I don't need to save so much. >> Exactly. I can spend more now. I can have more confidence that I'm not going to be getting myself into a lot of financial trouble if I buy a new car or if I trade up on my home or take that vacation. So it's definitely bolstering people's decisions to spend. >> But that's not the case for everyone. For those with fewer assets, their wealth hasn't been growing to the same extent. But the thing is, those Americans are also spending more. That's after the break. After leaving the furniture shop, Jean met Charlie Jean. So Charlie is a 30-year-old who was out raising money for a charity on the sidewalk. He asked me if I had a moment to speak and I said, "Actually, I'd like to ask you about your personal finances." >> I'm going to turn to Charlie. >> Charlie pulls on you, my friend. >> Charlie blesses heart was totally up for it. So he told me all about his finances and he's had kind of a rough ride. >> Yes. How long have you been doing this job? >> You know what? For like three months in February, March, April. Charlie used to work in tech as an engineer, but he left that job in the fall of 2024. And he says he didn't. and adjust his spending habits and response. - And so I burned through everything. - Yeah. - And then I was like, "Rack, I could pay my rent "with my credit card." So I ended up getting like $60,000, $80,000 in debt. - He got himself into some credit card debt and eventually declared bankruptcy. - And then I was going to buy groceries one day and one of these canvas or stops me. I'm like, bro, I have negative $17 in my checking account. I declared bankruptcy. I have no assets. I have literally nothing for you. And he was like, "Do you want to work here?" I was like, "Yeah, let's do it." - You know, he's earning enough to pay his bills at the moment. He has an apartment that he shares with a roommate. They pay $2,800 a month. - I'm making enough money to get by. I make 24 an hour here full time. - Okay. - And I can eat and enjoy my life. - What did Charlie say about how he feels about the economy right now? He's not happy about it. He says when he looks at the future, he feels pretty down. He said he's heard bad news about the economy for so long, about inflation, and about everything being terrible that he just doesn't really remember a time when the headlines were good is how he put it. - Despite that, Charlie is still spending money. But his spending looks a lot different from Alice. A lot of his money goes toward fast food. So Taco Bell, Double Dog, Stan's Donuts, Pot Belly, these like fast casual. Chipotle, I get a lot. A lot of these fast casual places run me from like 10 to 15 bucks. - Charlie said he eats most of his meals out because after work, he's often too tired to cook. That's also why he likes to splurge on the occasional Uber ride instead of taking public transit. - It is so exhausting to talk to people all day and eagerly and everyone's being mean. So I go home and also I'm walking all day. I'm on my feet, I'm walking everywhere. I'm like so dead. So like it takes everything not to just Uber eats 'cause I've got-- - Charlie told Jean that he's trying to cut back by picking up food instead of getting delivery and by cooking more. - So he's pretty hard up financially. He is a little bit worried about his future, his job situation in the future, all of that. But he's still out there spending on some items. He's not buying fancy cars or fancy clothes, really fancy foreign trips, but he's spending on fast food in Ubers. So that is also an element of consumer spending. - The thing that's allowing people like Charlie to keep spending, even while feeling bad about the economy, is the fact that he does have a job. - And that is a big part of what is supporting all this consumer spending right now. The unemployment rate is actually still really low. So even though there's not a lot of hiring happening at the moment, there's also not a lot of firing, not a lot of laying off happening. The job market is kind of in a steady state position. That's one of the main reasons we're seeing steady growth in consumer spending is people still have jobs. - There's two other things that are propping up spending. One of them is debt. - There is also a rise in the amount of debt that people are taking on. They are spending more on credit cards, they're going into more debt, and that is worrying. - America's total credit card balance reached $1.25 trillion in the first quarter of this year. That's the highest it's ever been since the Federal Reserve started keeping track of debt in 1999. The second thing propping up spending is savings. - And there has been also a fall in the savings rate. So the percentage of money that we all save out of our after tax income is about 4.1% now. So we save about 4.1% of our after tax income generally in the US right now. Before the pandemic, it was up higher. It was seven or eight percent. And so that fall in the savings rate also means that people are dipping into savings more to keep spending. So that is also worrying to economists. - So what do you think is going to happen? Are people going to eventually just start feeling better or is their spending going to slow down? - I mean, truly no one knows. If people start to get uncomfortable with the amount of money that they're spending, if they are racking up too much debt on their credit cards, if their savings is dwindling down to almost nothing, they may stop spending. They may say, "Hey, this is enough." If consumer spending falls or if growth slows a lot more, that means our economy grows less. We are out there buying fewer things and therefore we're making fewer things or we're providing fewer services. And that means people could lose jobs at factories and beauty salons and auto dealerships. So when consumer spending cools off or declines, that is bad news for the economy, definitely. - So what should we take away from this moment in the economy when these two historically correlated data points are no longer correlating? - I think it means that the economy is harder for us all to read. It's harder to know where it's going. It's harder to know what consumers will do next. There are a lot of variables out there that are still unclear. But the fact that this one important barometer is so unreliable just makes the picture a lot fuzzier. (upbeat music) That's all for today, Thursday, October 15th. The journal is a co-production of Spotify and the Wall Street Journal. If you like our show, follow us on Spotify or wherever you get your podcasts throughout every weekday afternoon. Thanks for listening, see you tomorrow.