Are you feeling as pessimistic as the rest of America?

Sponsored by

Thank the Bay Area Times for this week’s newsletter

The Bay Area Times has once again graciously sponsored this week’s newsletter. If you’re interested in keeping up the latest news in business and tech, you can join 250,000 other subscribers. Remember, a click on an ad helps us keep this newsletter going.

Visual-based newsletter on business and tech

We explain the latest business, finance, and tech news with visuals and data.📊

All in one free newsletter that takes < 5 minutes to read. 🗞

Save time and become more informed today.👇

Subscribe with one click today

Consumer Sentiment & Inflation Update

This month’s University of Michigan’s Consumer Sentiment report indicates American’s are definitely in what’s recently been coined a vibecession. A vibecession describes an, “economy that has emerged from a downturn and is showing signs of strength but is still not making a lot of people happy,” which pretty much describes how Americans feel today. Consumer sentiment tumbled in May to 69.1 from 77.1 in April. However, this number is still above the 59.0 level we saw a year ago.

The Upshot: After a significant rise in consumer sentiment to begin the year, Americans are once again souring on their economic prospects. Despite strong gross domestic product numbers, Americans do not seem to be feeling much positive growth for their own finances; there are a number of potential reasons why.

First, the rising price of shelter, cars, food, and labor means much of the wage gains buoyed by a rising economy have been negated. Higher costs create sticker shock, and feed into more economic pessimism. This is especially true of the housing market. A dramatic increase in the medium home price coupled with high borrowing costs make affording a move-in ready home in a large metropolitan area nearly impossible for those in their 20s and 30s.

Second, a lot of the increase in GDP is tied to government spending. Part of all this spending is the implementing the Inflation Reduction Act of 2022. Many local and state government received money to fix infrastructure across the country. Other legislation like the Chips and Science Act pushed more money into the creation of semi-conductor factories. These bills in addition to other legislation and grants awarded by the Federal government to state and local governments over the past three years mean governments are likely a large part of GDP growth. To put things more simply, it’s not just American consumer spending.

Third, the stock market has reach new highs, but much of the gains flow to the richest Americans. A BusinessInsider article estimated the top 10% of Americans own 93% of stocks, even at a time where stock market participation is at an all time high with 53% of American households owning stocks. Even more alarmingly, the article found the bottom 50% of Americans own only 1% of all stocks and mutual funds in the last quarter of 2023. The media and politicians can boast about markets reaching all-time highs, but if roughly half of American households are seeing those gains and only the wealthiest 10% of Americans are seeing substantial gains then it is reasonable to see why Americans are not too excited about their economic prospects going forward.

Lastly, even with strong stock market growth and historic home appreciation since the beginning of the pandemic, it is important to note that those gains are unrealized. More specifically, in order to take advantage of the price appreciation of stock market gains, you have to sell your investment. This means dealing with capital gains taxes. And after you sell your assets, they stop increasing in value unless invested in another asset. The story is the same with housing, you’d have to sell your home to realize any house appreciation—and worst still, you’d have to go and buy or mortgage another one in this awful housing market. Yes, you can refinance to get cash out of your homr, but with rates hovering around 7% it makes little sense to choose that option. Therefore, much of the gains Americans are seeing are simply on paper, not actually liquid assets they can use immediately.

We want to help you make financial freedom inevitable