Consumer confidence rises for the first time in 5 months, but there’s a catch

Americans were slightly more optimistic about their personal finances in August as cooling inflation convinced more people that the cost of living crisis was moderating.

The University of Michigan’s consumer sentiment index climbed to 67.8 in August from 66.4 in July, based on a preliminary reading that was released last week. The August uptick was higher than what economists expected. It was also the first rise in five months.

According to the Michigan survey, Americans expect inflation to rise 2.9% annually over the next 12 months and 3% over the next five to ten years.

These levels are consistent with the latest Consumer Price Index (CPI), which slowed to a 2.9% annual rate in July—the first time it fell below 3% in more than three years.

Although inflation is seen as stabilizing, it remains Americans’ “top concern,” said survey director Joanne Hsu. This is because consumers are still paying for the cumulative inflation of the past four years.

As Creditnews reported, consumer prices are 20.8% higher compared to February 2020. Some inflation categories, such as housing, insurance, and certain food items, have increased even faster.

This inflation has also spilled over into cheaper grocery items—a phenomenon known as “cheapflation.”

Wherever they turn, ordinary Americans continue to face persistent cost pressures. It’s no wonder why inflation continues to be a major source of financial stress for most.

Inflation leads to higher levels of financial stress, survey shows

According to a new MarketWatch Guides survey, 47% of Americans reported that 2024 has been the most stressful year of their lives financially. In fact, 42% of survey respondents said they avoid looking at their bank balance out of fear.

Overall, 88% of survey respondents said they feel some level of financial stress, and 65% identified finances are their biggest source of worry.

Many survey respondents attributed their financial struggles to “high prices for essential goods,” such as food, shelter, and transportation.

Elevated levels of financial stress come as more Americans rely on consumer debt to make ends meet. According to the New York Fed, credit card debt hit a record $1.14 trillion in the second quarter as more consumers entered into “serious delinquency.”

Rising delinquencies signal “increased financial stress, especially among younger and lower-income households” that rely on credit cards for living expenses, said Wilbert van der Klaauw, an economic research adviser at the New York Fed.

The relationship between debt, inflation, and financial stress seems to be a self-fulfilling prophecy. According to a Forbes Advisor study, 72% of Americans are likely to accumulate more debt when under financial stress.

The Forbes study estimated that more than three-quarters of U.S. households are dealing with some form of debt. A staggering two-thirds of respondents said they’re likely to consider bankruptcy to address their growing debt burden.