According to the University of Michigan's September Consumer Sentiment Index, Americans seem to be in a funk. At 71.6 points, the index is above the June 2022 all-time low of 50 but well below the 101 achieved in February 2020. While the index is mired at pre-pandemic levels, the economy has marched ahead. According to a related Economist magazine study, for the first time in more than 40 years, the sentiment index no longer tracks traditional measures of economic activity such as employment, income and GDP growth. Instead, the index seems to be locked in a cellar.
The consumer funk is deep and difficult to understand. Could it be worry about inflation? Is it falling personal income? Or lost trust in government and other institutions that help people cope in time of trouble and celebrate in better times? Perhaps, we need to revisit Jimmy Carter's 1979 malaise speech, when struggling with an OPEC-driven energy crisis he noted: "There is a growing disrespect for government and for churches and for schools, the news media, and other institutions. This is not a message of happiness or reassurance, but it is the truth and it is a warning."
If consumers are in a funk, they are not alone. According to a recent National Federation of Independent Business (NFIB) survey, owners and operators of America's small businesses are worried, too. The organization's "Small Business Optimism Index decreased 0.6 of a point in August to 91.3, the 20th consecutive month below the 49-year average of 98." NFIB also reported that a net negative 37% are looking for better business conditions over the next six month, and while struggling to fill job openings, the number of business owners expecting improved sales continues to weaken.
Unfortunately, the CEOs of 143 of the nation's largest firms share the NFIB negative outlook. According the Business Roundtable's third quarter 2023 survey:
"CEOs continue to moderate their plans and expectations for the next six months, particularly in employment. ... . [R]oughly a third expect to scale back."
There is one last item to drop in the mix when trying to understand the current funk and that's what is happening to U.S. personal income. The most recent data show that real median household income has fallen for the last three years, year-over-year, after skyrocketing 7.14% in 2019. This kind of sinking volatility inspires caution and a tendency to hunker down while reassessing the situation.
Returning to Carter's malaise assessment and his comments about declining trust, current readings from Gallup indicate that just 26% of those recently surveyed trust the presidency and public schools. Only 25% trust organized labor. At 65%, small business ranks highest among 14 ranked institutions and the military, second, with a reading of 60%.
Reflecting on all this leads me to conclude first, that major features of our lives have not just recently fallen apart and taken a new tack, that fundamental relationships — both economic and social — still matter, but that COVID disrupted critical features of life, and a new equilibrium has not been achieved. Add to this a high level of toxic political rhetoric, threats of government shutdowns, the effects of the Russia-Ukraine war, and badly disturbed food and energy markets and the situation faced by ordinary citizens, owners of small businesses, and corporate CEOs becomes all the more daunting.
So where do we stand? When all else fails, I turn to the authors of great books for inspiration. In this case, it's Watty Piper, author of "The Little Engine that Could." In the current situation, we have to hunker down and repeat aloud, "I think I can." Do it daily. Then, give it time.
Bruce Yandle is a Distinguished Adjunct Fellow for the Mercatus Center at George Mason University.
Tribune Content Agency