Why consumers are pessimistic (it’s not just inflation)

Last year was the best year for job growth on record. Workers are commanding solid wage gains. Booming home and stock-market values have lifted household wealth to records. But the record job growth followed record job losses in 2020, due to the Covid-19 pandemic and lockdowns. Inflation at 7.5% is eating up those wage gains for many Americans. And the unsettling effects of the pandemic, such as product shortages, are still playing out, but the real issue is that consumers feel they have lost control of their lives.

Unlike the country’s last big inflation bout in the 1970s and early 1980s, when price pressure built over a decade, this time a cost-of-living runup unfolded in months. It caught many off guard, from President Biden and Federal Reserve Chairman Jerome Powell to the ordinary grocery shopper. The latest phase of the pandemic has further eroded faith in leaders and institutions, leading to feelings of frustration, aimlessness and helplessness, polling shows, even among some who are doing well in today’s economy.

While today’s inflation hasn’t hit double digits, as it did in 1974-75 and 1979-81, with a peak of 14.6%, it is in some other respects more corrosive. It is accompanied—and, in part, caused—by shortages of goods such as computers, cars, and even soup and cereal. A July Gallup poll found that seven in 10 Americans had been unable to get a product or had faced delays in getting one. Is there anything worse than having money and not being able to spend it because the products you want aren’t available?

We’ve become a society of instant gratification. Americans are tired of waiting for product shortages to end. They’re tired of sold-out flights and hotels to their favorite vacation destinations, and they’re tired of seeing their paychecks get eaten up by the rising costs of gas and groceries.

According to the National Library of Medicine, “experiencing feelings of helplessness has repeatedly been reported to contribute to depressive symptoms and negative affect. In turn, depression and negative affective states are associated, among others, with impairments in performance monitoring. T us, the question arises of whether performance monitoring is also affected by feelings of helplessness”.

While it’s true that those who earn less are more likely to struggle financially, the results across all income brackets are staggering:

  • Nearly 40 percent of those with annual incomes over $100,000 live paycheck-to-paycheck, including 12 percent struggling to pay their bills. 
  • Fifty-three percent of those who make between $50,000 and $100,000 annually live paycheck-to-paycheck, with 18 percent struggling to pay their bills. 
  • Seventy-two percent of those who make less than $50,000 per year live paycheck-to-paycheck, with 33 percent struggling to pay their bills.

Consumers want a return to the “good old times,” better known as the prepandemic atmosphere. Unfortunately, that’s not going to happen. Br ds and retailers are passing along higher costs to consumers with little regard to losing market share.

Some of the commercials during the Super Bowl tried to remind consumers of better days, but that disappears when they go grocery shopping. In the meantime, the media promotes negative headlines around gas prices and consumer sentiment, adding to the dread that people feel.

Analysts said more people were liable to dip into their savings over the coming months – a period likely to be marked by an increase in the annual inflation rate from December’s 5.4%, higher taxes, and higher energy bills.

Thomas Pugh, an economist at the consultancy firm RSM UK, said: ‘The latest money and credit figures suggest that consumers are borrowing more and saving less as they try to maintain their lifestyles in the face of surging inflation.

“A rise in consumer borrowing over the next year may suggest that consumers are dealing with high inflation and attempting to maintain their lifestyles by borrowing. Indeed, we know that retail sales volumes slumped in December, so it seems unlikely that the £0.8bn increase in consumer credit in December was due to consumers buying more goods.”

Thomas Pugh, an economist at the consultancy firm RSM

Expect more headlines about inflation, the rising costs of gas and new cars, and pessimistic consumers. Unfortunately, replacing politicians with bat shit crazy politicians on the right will lead to more negative headlines and crazy theories.

There is nothing worse than the feeling of not being in control of what’s happening to you. Lockdowns, the pandemic, inflation, and shortages give consumers a sense of helplessness, leading to anger.

Brands need to be the calming water in the storm, but right now, there’re just raising prices and reporting record profits.

About richmeyer

Rich is a passionate marketer who is able to quickly understand what turns a prospect into a customer. He challenges the status quo and always asks "what can we do better"? He knows how to take analytics and turn them into opportunities and he is a great communicator.

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