Americans have never been this pessimistic about the economy, with consumer confidence now hitting record lows, according to new data.
As soaring inflation erodes household purchasing power and threatens a cost-of-living crisis, the University of Michigan’s consumer confidence index has plunged to a record low.
In May, the Michigan consumer sentiment index fell from a reading of 58.4 to just 50.0 in June, a record low.
The dismal reading represents a month-over-month drop of 14.4 percent and a year-over-year decline of 41.5 percent.
While all components of the sentiment index fell, the sharpest decline was in the year-ahead outlook for the U.S. economy.
The outlook fell 24 percent between May and June, according to University of Michigan economist Joanne Hsu, director of the consumer confidence survey.
“While consumers still appear relatively optimistic about the stability of their incomes, their perceptions of the economy are much more strongly influenced by concerns over inflation,” Hsu said.
Persistently high inflation is likely to push consumers to change their spending habits, including buying cheaper alternatives or cutting back entirely, Hsu added.
“The speed and intensity at which these adjustments occur will be critical for the trajectory of the economy,” she noted.
The warning comes as a growing number of economists have put the U.S. economy on recession watch.
A number of Wall Street analysts recently upped their forecasts for a U.S. recession.
Goldman Sachs is now predicting a 30 percent chance of the U.S. economy contracting over the next year, up from 15 percent in an earlier projection.
“We now see recession risk as higher and more front-loaded,” Goldman economists said in a June 21 note.
The bank’s warning came about a week after the Federal Reserve rolled out its biggest rate hike since 1994 to stem an inflationary surge.
William Dudley, the former president of the Federal Reserve Bank of New York, said in a Bloomberg op-ed this week that a recession is inevitable by the end of next year.
On Friday, the International Monetary Fund (IMF) cut its U.S. economic growth forecast.
However, the IMF is predicting that the United States would “narrowly” avoid a recession.
“We are conscious that there is a narrowing path to avoiding a recession in the U.S.,” IMF Managing Director Kristalina Georgieva told a news conference.
Georgieva added that there is a high degree of uncertainty around this outlook and that surprise economic shocks could tip the U.S. economy into a contraction.
Democrat President Joe Biden and members of his administration have maintained that a recession is not “inevitable.”
They point to a tight labor market with low unemployment, around two vacancies for every job-seeker, and high savings that Americans could dip into to support spending.