Four Signs Consumers Are Pessimistic About the Economy

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Many consumers around the world see an economic downturn coming in the year ahead.

U.S. consumer sentiment reached an all-time low in June 2022 and remains 15% below where it was a year ago, according to the University of Michigan. Expectations also took historic dips over the past year and remain depressed in Europe and China, according to TradingEconomics data from the European Commission and National Bureau of Statistics of China.

People feel uncertain about their own and their country’s financial futures due to factors like stubbornly high energy and food prices, the war in Ukraine and lingering Covid-19 disruptions, says

Joanne Hsu,

director of the Surveys of Consumers at the University of Michigan.

The relatively strong global labor market over the past few years has allowed people to keep spending, economists say, though many predict employment will contract in the coming months. One bright spot: Inflation appears to be easing in some of the world’s largest economies.

There is no widely referenced universal survey of consumer sentiment around the world, but data on monthly wage growth, wealth and retirement, unemployment and inflation help paint a picture of an anxious global public.

1. Real wage growth dropped

Inflation has caused consumer purchasing power to plummet, according to a November 2022 report from the International Labour Organization. Although nominal wages increased in many countries, they did not keep up with inflation.

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Real global monthly wages, including China, fell 0.9% in the first half of 2022, the ILO says. That was the first time this century that real (inflation-adjusted) global wages have fallen. Without China, global monthly wages were down 1.4%. Among advanced G-20 countries, including the U.S. and U.K., real wages declined an estimated 2.2%, while real wages in emerging G-20 countries grew by 0.8%, 2.6 percentage points less than in 2019. Rising inflation has had the biggest cost-of-living impact on lower-income earners, ILO research officer

Rosalia Vazquez-Alvarez

says.

2. The job market is slowing

We’re at the start of a downturn in the labor market, a new report from Oxford Economics suggests. The study—which tracked whether the word “job” and other labor-market terms were referred to positively or negatively across 400,000 sources in 123 languages—finds that sentiment is coming down quickly in countries around the world, especially in Europe. “Most of the lines here are pointing downwards now,” says Innes McFee, the report’s co-author and chief global economist at Oxford. Mr. McFee says the labor market might be starting to feel the impact of the central banks raising rates.

3. Retiring is becoming more difficult

Last year marked one of the worst to retire in recent memory, according to the Natixis Center for Investor Insight’s annual Global Retirement Index. Almost every developed country is finding the challenge of ensuring a secure retirement for their citizens greater than a year ago, executive director

Dave Goodsell

says. Global Retirement Index scores, shown here, are relative to how well a country performs compared to others in the index. Each country’s score is based on how well retirees can answer four questions: “Can I afford to live in retirement? Will I have access to the quality healthcare I need? Will the economy be supportive of my retirement? Will I live in a healthy environment?” Many country’s scores have declined, which Mr. Goodsell attributes to inflation forcing people to spend down their savings more quickly, and the rapidly aging population in the developed world.

4. American economic confidence remains low

Gallup has been measuring the American public’s faith in the economy since 1992. Average confidence over the past 20 years has been close to zero, reflecting roughly equal periods of positive and negative scores over the three decades of measurement. As of November, confidence was at minus 39. “That is what I would call in profoundly negative territory,” says

Lydia Saad,

Gallup’s director of U.S. social research. That number is in the bottom 10% of the firm’s monthly readings since 2001 and reflects the 55% of Americans who said they had experienced financial hardship because of rising prices as of December, Ms. Saad says. The index had been as low as minus 58 in June and Americans continue to be less confident about the economy now than they were in 2021 and early 2022.

5. Inflation is starting to slow

Despite all this, inflation appears to be slowing. If that continues in 2023, some of the economic pressure might dissipate and real wages could rise. In December, the U.S. consumer-price index was up 6.4% from a year earlier, compared with a 9% increase in June. Gasoline prices in the U.S. have fallen in recent months, though groceries remain stubbornly expensive and energy bills are still a concern, especially in Europe as a result of the war in Ukraine.