“While consumer sentiment is still quite low by historical standards, we’re starting to see some pretty dramatic improvements,” said Joanne W. Hsu, a University of Michigan economist and director of its closely watched consumer surveys. . “It’s largely fueled by a slowdown in inflation, especially with lower gasoline prices.”
It’s particularly good news for the White House, which has been hammered by criticism that it hasn’t done enough to fight inflation.
Gasoline prices, which peaked at more than $5 a gallon in June, have fallen to around $3.74 a gallon nationally. This 25% drop in costs has been substantial for many Americans, especially those in lower-income households where gas costs represent a larger share of weekly expenses.
Headline inflation, meanwhile, eased slightly – prices were flat in July, although still up 8.5% from a year ago – due to aggressive rate hikes interest by the Federal Reserve.
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Even so, the impact on wallets and psyches was swift. Measures of business conditions, near-term financial outlook and buying plans all improved in August, according to leading indicators from the Conference Board. Consumer confidence rose that month after falling for three straight months, and the number of Americans reporting vacation plans hit an eight-month high.
“When gas prices go down at the pump, people immediately feel better,” said Diane Swonk, chief economist at accounting giant KPMG. “Inflation is still high, but the fact that gas prices are at record highs makes a huge difference to people’s spending and their expectations for the future.”
In Omaha, Nils Haaland says he feels much better about the economy now that refueling his Honda pickup costs $65 instead of $95. Haaland teaches acting at a community college and sometimes works as a handyman. He says soaring fuel and food prices this summer have forced him and his wife to stop dining out, postpone summer trips and buy less meat. Although prices are still relatively high, he says he feels less worried that inflation will continue to spin out of control.
“For a long time, I made sure I didn’t indiscriminately fill my basket at the grocery store, but now a lot of that behavior has eased off a bit,” the 58-year-old said. “When gas came back to $3.50 a gallon, all of a sudden it was like, ‘Oh, we know how to make this work. Things are going to be fine.’
The Fed moved quickly to raise interest rates enough to contain inflation. While there are signs that his approach is working – prices have stabilized and home values are starting to cool in parts of the country – there are still concerns that the central bank’s actions could slow the economy too much, pushing it into recession.
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The question, say economists, is whether the current calm signals a turning point for inflation, or whether it is just a temporary reprieve before the economy deteriorates.
“The Fed still has a big challenge ahead, which is to cool inflation beyond gas prices and get inflation under control before it fundamentally distorts people’s behavior,” Swonk said of KPMG. “It’s getting very complex now, and the more complexity there is, the more chance there is of missteps.”
In California, Jack Foote says economic uncertainty has caused him to rethink his retirement plans. Foote, 58, had hoped to retire in June but says a recent pay rise, combined with lingering fears the economy could deteriorate further, has kept him in his administrative role at Los Angeles Unified School District.
“I generally feel better about gas prices and the economy, but I’m also worried that things could still go south,” Foote said. “Maybe things are stabilizing for now, but that doesn’t seem like a sure thing.”
Although inflation remains a top priority for American voters as the midterm elections approach, the share of Americans who say it is their biggest concern has declined. According to a new NPR/PBS NewsHour/Marist poll, some 30% of Americans say rising prices are their biggest voting issue, up from 37% in July.
After more than a year of widespread price increases, many households have become more aware of their spending habits.
The Fed’s latest “Beige Book” report, released this week, found that many households have shifted to cheaper goods and are shifting spending more toward essentials like food.
That’s certainly been the case at Walmart, where executives say they’re seeing more middle- and upper-income customers than usual. The retail giant, known for its low prices, also finds that families are also more likely to buy store brands and lower-priced options like hot dogs and canned tuna instead of the charcuterie, for example, than they were a year ago.
“As the year progressed, we have seen more pronounced shifts in consumption and declining business activity,” John David Rainey, the retailer’s chief financial officer, said on a call on earnings. results in August.
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Leslie Hix, 67, a retired account manager in Gadsden, Ala., says she and her husband have started traveling again now that gas prices are more manageable. They recently traveled to the Bahamas with their grandchildren and are going on a Mediterranean cruise this month.
“We’ve seen gas prices go up all year, but it only hit us recently when we realized how much we’ve been draining our savings,” Hix said, adding that she also had started buying food at Walmart instead of grocery shopping. delivery from a more expensive chain.
“We’re not going back to all our old habits yet, but we definitely feel a lot better about the economy,” she said.
Some business owners are also noticing a change. Suzanne Windham, a dentist in Shreveport, Louisiana, says clients have started spending more freely. They are more willing to shell out for expensive treatments than they were at the start of the year, when people expressed more fears about covid risks as well as their finances.
But now business is up 15% from a year ago, and Windham says she feels better about the economy.
“It surprised me that business boomed, but it’s been really good,” she said. “People seem more relaxed and less worried.”
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