13% drop in consumer sentiment vs. last year
The WalletHub Economic Index is a monthly survey that evaluates economic prospects based on 10 components of consumer sentiment. These components revolve around how people feel about their finances, purchasing plans and employment opportunities. View the findings from the index here.
Consumers feel 13% less confident about their financial outlook now than they did one year ago, according to the latest WalletHub Economic Index, released today (with accompanying expert commentary). This is the second largest year-over-year drop during the past 12 months.
Key Stats
- Rising stress: Consumers’ stress levels regarding money are nearly 15% worse in January 2023 compared to last year.
- Low financial optimism: In January 2023, consumers’ optimism about their finances is about 14% lower than it was last year.
- Fewer new employment opportunities: The share of consumers who feel new employment opportunities are “abundant” is more than 7% lower in January 2023 compared to last year.
- Weak sense of job security: People’s confidence in having a job in six months is 7% weaker in January 2023 compared to last year.
- Real estate declines: Home-buying interest among consumers decreased slightly (-1.8%) during the past year.
Expert Commentary
How have consumer spending habits changed during this last year?
“This last year, the market experienced inflation despite multiple rate hikes. However, people kept on spending, partially because of residuals from the COVID-19 pandemic stimuli and the low unemployment rate. Those spendings are not on big items like houses or cars. People are spending on essentials. They are “downgrading” through, for example, buying store brands, consuming more home food and going less to restaurants, and traveling less.”
Nada Nasr Bechwati – Associate Professor, Bentley University
“This past year was marked by consumer anxiety, lowering of consumer confidence & expectations caused by various factors such as the general economic conditions, inflation, interest rates, housing prices, the outlook for income, unemployment, etc. This resulted in consumer pull-back on spending on both products and services. While this is not a short-term phenomenon, it does damage both short and long-term growth. Typically, at this point in the year, holiday spending is likely to buoy the economic outlook a bit but that is definitely in doubt. Retailers have resorted to deep discounting to move merchandise and thus those with discretionary budgets are like to fare well this season.”
Mohan Menon, D.B.A. – Professor and Department Head, Department of Management & Marketing, University of North Georgia
Has the inflation context encouraged Americans to become more financially savvy?
“40-year high inflation has resulted in less money being spent on holidays and travel and more on essentials including back-to-school items for parents. Online purchasing continues to grow with consumers focusing more on value from the brands.”
Carol Johanek – Adjunct Professor, Washington University
“The rise in inflation in the United States has increased attention to consumer spending patterns and the financial challenges faced by consumers. The current economic environment has led many Americans to closely examine their budgets and their spending habits as prices continue to climb. As a result, more and more Americans may choose to purchase lower-priced alternatives (such as store brands and generics) to more well-known brands. In short, Americans have begun to rethink their spending choices due to increases in inflation. The inflation context has also shown that many Americans, especially those from low-and-moderate income families, face more financial challenges due to the recent increases in inflation. Those families trapped in a cycle of poverty may need more systematic help beyond the scope of many financial well-being programs. The rise in inflation has shown that not everyone has the same access to financial resources and many face barriers to financial well-being.”
Anand R. Marri, Ph.D. – Dean and Professor, Ball State University Teachers College
What tips do you have for consumers looking to improve their finances?
“The first recommendation is for people with cash lingering in banks while having debts here and there, e.g., on credit cards. Use the cash to pay the debts. The second recommendation is to be patient and hold off on big purchases if they can. We are in an unstable market and big items’ prices overreacted to inflation. Recently, the prices of houses and cars (both new and used) began to drop. Finally, financial literacy helps and so does self-control. More informed and rational decisions, vs. emotional and impulsive ones, can make a difference.”
Nada Nasr Bechwati – Associate Professor, Bentley University
“Both in the short and long terms, improving one’s financial health starts with having an accurate account of the income and expenditures – where is the money coming from and where is it going to!! In this basic calculation, one needs to review their sources of income and try to strategize about enhancing it, may be by doing more or picking up an extra gig. But, since income is less controllable compared to expenditures, consumers need to break down their spend into non-discretionary (ex. mortgage, rent, food, etc.) and discretionary (ex. new clothes, vacations, etc.). Online spending trackers help in this process. Tracking spending over a few months provides a clearer picture of spending habits and this forms the basis for a good personal budget and financial plan. The essence of spending tracking and budgeting is to control unnecessary spending.”
Mohan Menon, D.B.A. – Professor and Department Head, Department of Management & Marketing, University of North Georgia
