00:00 Speaker A
Consumer sentiment edged lower in September, the University of Michigan’s index coming at 55.1 down from 58.2 in August.
00:09 Speaker A
So what does that mean for consumer spending which has fueled an otherwise uneven economy? Let’s bring in Joanne Hsu, University of Michigan Director, Surveys of Consumers. Joanne, thanks for joining us.
00:21 Speaker A
Um, indeed, you had the weakening here, um, in the index. At the same time, you know, we were just talking about personal spending. Personal spending actually ticked up um in August. We’re talking about the uh sentiment for September. Nonetheless, how do you sort of, um, explain the disconnect that we’ve continued to see between sentiment and spending?
00:37 Joanne Hsu
What’s really important to understand is that consumer spending isn’t generated evenly throughout the US population. The vast majority of consumer spending is being generated by those with high incomes and high wealth. And indeed, um, when we look at uh sentiment trends this month, um those with large stock holdings were being supported by strong stock values. Uh their sentiment held steady whereas other consumers uh saw a decline.
00:57 Joanne Hsu
Um, and and so what we’re seeing is robust consumer spending, relatively speaking, being supported by the people who have the resources to do so, but most Americans, um they are not confident about the future. Um, and with the uh perceived weakening in labor markets, it’s hard to see how we could have universally sustained robust spending throughout the population.
01:12 Speaker A
Joanne, this is such a key point, um, it feels like and one that we’ve been talking a lot about recently, the so-called K-shaped economy or whatever moniker you want to give it, the the the income inequality divide, if you will.
01:22 Speaker A
When you look at your readings and that sentiment gap, what does the gap look like? Can you quantify it? And has it worsened over time? Does it remain pretty much the same? How has that developed?
01:31 Joanne Hsu
We’ve always seen a bit of a gap, um, in which higher income, higher wealth consumers have more favorable views of the economy than lower income, lower wealth consumers. And, you know, that’s that’s not much of a surprise. Interestingly, over the course of 2019, these groups all kind of converged in April and May, um, when uh tariff rhetoric really hit its peak and the extremely high tariffs were announced in April.
01:44 Joanne Hsu
Um, since then, um, you know, during that time, consumers across the board had braced uh for heavy impact from those policies and given that the pass through to consumer prices has been relatively so slow, um and a lot of these tariffs have been rolled back, um we’re now seeing an improvement in sentiment over the course of the last few months for high-income, high wealth people, whereas for those at the bottom of the distribution, their sentiment is pretty much as low as it was in April.
02:05 Speaker A
And and Joanne, what about the other big divide that we talk a lot about in the US and that’s the political divide. I know that you all have tracked sentiment by political party for a while here. What kind of developments are we seeing there?
02:14 Joanne Hsu
That’s right. So we’ve been seeing partisan divides and sentiment dating back to at least the Reagan administration. So this isn’t really anything new. But um what’s really unique about the current situation is um that the partisan divide is very much being driven by differences in views on how um federal policies are going to impact the economy.
02:23 Joanne Hsu
Uh broadly speaking, uh Republicans are expecting um this the current policies to eventually lead to some growth in the economy, whereas Democrats are really worried it’s going to lead to higher unemployment and um worsening business conditions and and and so forth. Um, interestingly, one thing that all people do agree on, um whether or not you uh disagree on the long run, is that in the short run it’s going to make inflation um worse.
02:40 Joanne Hsu
Uh so consumers are broadly across the political spectrum expecting more inflation than they were earlier this year. Um they are not convinced that we are out of the woods in terms of um the the path of inflation worsening.
