Update on U.S. Consumer Sentiment

Despite months of persistent consumer spending, the Federal Reserve’s (Fed) efforts to combat stubborn inflation have continued to weigh on consumer confidence and purchasing power. U.S. consumers continue to be plagued by rising prices, with particular concern around costs for essentials, including healthcare and energy.

While consumer sentiment jumped in March, it remains well below levels observed pre-pandemic. Lower levels of consumer sentiment have been driven primarily by higher prices for high frequency purchases, including food and gasoline, the price of which has outpaced average wage growth, which has increased from $28.55 to $34.57 in the last four years.

The inflation of a variety of other costs, including higher costs for various credit products such as auto loans, mortgages, and credit cards, have put stress on consumer finances. Increased mortgage rates are among those that have burdened consumers the most, with the average 30-year fixed-rate mortgage rising to 6.9% in March 2024. This has negatively impacted not only the housing market, but also spending across several categories of products traditionally tied to home sales, including furniture, home improvement products, and general home décor.

Other consumer loans, including car loans (rising to 7.5% in 2023 from 3.9% in 2021) and credit card rates (rising to 22.8% in 2023 from 12.9% in 2013) have had a significant impact on disposable income. Credit card delinquency rates have also begun to climb, reaching their highest rate in over a decade, while the share of borrowers making only the minimum payment climbed above 10% for the first time since 2019.

Despite current levels of consumer sentiment, consumer spending rose by 0.8% in February, its most significant increase in over a year. Meanwhile, U.S. core inflation rose by 2.8% year-over-year, remaining unchanged from January. The price of general goods increased by 0.5%, driven primarily by higher energy costs. While inflation remains above the Fed’s target rate of 2%, Jerome Powell viewed February’s inflation data positively, with the market continuing to price in three rate cuts throughout the remainder of 2024.