Consumers’ Perceptions and Our Economy
Randy Wolken, President & CEO
On Monday, the Federal Reserve Bank of New York reported that American consumers expect notable future inflation-level declines. This decline in expected inflation is good news for our economy. This may also influence the Fed, which is expected to raise interest rates to ease inflation. Fed officials believe the public’s expected inflation strongly affects where price-pressure levels stand now. They also have noted that longer-term inflation expectations have remained relatively stable in the face of surging inflation. The public believes price pressures will eventually moderate the Fed’s 2% target.
The Labor Department on Tuesday reported its consumer price index rose 8.3% in August from the same month a year ago, down from 8.5% in July and from 9.1% in June, which was the highest inflation rate in four decades. The CPI measures what consumers pay for goods and services. Some recent data has shown moderation in inflation, and this could signal price pressures may be softening. Consumers are pushing back against higher prices by changing their spending habits.
Consumers will be critical in how our economy proceeds. There are plenty of jobs open. In August, the unemployment rate was 3.7% which is very low by historical standards. And the US added 315,000 jobs. Couple this with high inflation, and we are not sure where this takes the US Economy. There are mixed signals everywhere. Inflation has been running hot. However, recent declines in energy prices, especially at the gas pump, are very helpful. Gasoline prices fell sharply in August. A range of factors was evident. According to the AAA, households have responded by driving less, combining errands, and reducing dining out. Consumer spending slowed to a 1.5% annualized growth rate in the second quarter, adjusted for inflation, from 1.8% in the first quarter and 7.9% in 2021. Before the pandemic, spending tended to grow at rates of 2%-3%. As we can all see, we still have a ways to go.
It looks like a bumpy ride, at least for now. Many MACNY members report their businesses are doing very well and continue to expand operations. Others are more cautious and have seen some signs of slowing. We are watching it closely and are ready to assist you as you grow your business. From what I see, manufacturing remains solid and resilient.
Please let us know if you need assistance. And thank you for all you do for our community.