US consumer sentiment takes a hit despite promises of more stimulus

American households making less than $75,000 are feeling especially pessimistic about their financial futures, despite promises of more federal stimulus measures in the coming months, according to the latest University of Michigan’s consumer sentiment survey.

That’s a bad sign for the broader US economy, which runs on consumer spending. And it further underscores the gap between America’s wealthiest, whose fortunes have soared thanks to a booming stock market, and lower-income earners who have born the brunt of the past year’s layoffs and business closures.

The consumer survey’s early February results were far worse than economists’ had expected, falling to 76.2 points — a major slide from the same period last year, just before the pandemic hit, when the index stood at 101 points.

“Households with incomes in the bottom third reported significant setbacks in their current finances, with fewer of these households mentioning recent income gains than any time since 2014,” said Survey of Consumers chief economist Richard Curtin.

The worse-than-expected data was due almost entirely to worsening sentiment among households earnings less than $75,000 per year and to deteriorating expectations, which make up part of the index. They dropped nearly 6% to 69.8 points. The expectations index is calculated using multiple data points over a 12-month to five-year horizon.

Only 23% of households in the bottom third of incomes said their current financial positions had improved, compared with 54% of those in the top third of income reporting a boost.

This is yet further proof of the inequality in the K-shaped recovery, which works for some Americans but leaves lower-wage earners and minorities behind.

The report signals that the Biden administration’s stimulus plans and the vaccine rollout aren’t doing much so far to boost consumer confidence.

Potential lockdowns to prevent the spread of the virus are likely weighing on expectations, too, said Mike Englund, chief economist at Action Economics.

The sentiment survey often reveals partisan splits when it comes to expectations. In the February survey, the expectations index tumbled for Republicans and Independents, to 45.6 points, while increasing slightly for Democrats to 92.3 points.

“Back in 2016, we saw a similar, but opposite partisan shift in confidence following Donald Trump’s election victory, which pushed up measured consumer confidence but was not followed by an acceleration in consumption growth,” said Michael Pearce, senior US economist, at Capital Economics.