Even wealthy Americans are struggling economically as gas prices rise and stocks fall | CNN Business

Washington –

Americans are growing pessimistic about the U.S. economy as the Iran war continues to shake out, with sentiment falling across all income groups — including the wealthiest.

Consumer sentiment fell 6% this month to a final reading of 53.3, the University of Michigan said Friday, down from what was reported earlier this month, when the war had just begun. Sentiment is now at its lowest level since December. Friday’s reading was below the 54.2 figure that economists had reported in a survey by data firm FactSet.

The conflict in the Middle East has pushed up global energy prices in the past month, causing major US indexes to fall as investors looked for signs that it could end soon. President Donald Trump says the administration has entered into negotiations with Iran.

Joanne Hsu, director of the survey, said in the release: “The decline was seen across years and political party. “Consumers with middle and high incomes and stock wealth, affected by rising gas prices and unstable financial markets after the Iran war, showed a significant drop in sentiment.”

A prolonged war could raise inflation and weaken the US economy. Gas prices across America have risen since the war began.

Americans’ expectations for inflation next year posted the biggest monthly increase in nearly a year, rising to 3.8% from 3.4% in February, higher than anything seen in 2024.

However, survey respondents do not expect war-induced high inflation to persist over the next five to 10 years, with long-term inflation expectations actually falling this month to 3.2%.

“Buyers may not expect recent negative developments to continue into the future,” Hsu said. “This sentiment could change, however, if the Iran conflict lasts longer or if higher energy prices translate into general inflation.”

This encourages Federal Reserve policymakers, paying attention to people’s views on prices, especially over time. Long-term inflation expectations serve as a proxy for Americans’ confidence in the Fed’s ability to control inflation. The money targets 2% of inflation every year, as measured by the Personal Cost Index, which is currently running at 2.8%, as of January.

Declining consumer sentiment has not translated into lower spending in recent years.

Every time sentiment drops after this pandemic – like 2022 when inflation is at a 40-year high or 2023 during the chaos in Congress over the debt ceiling – Americans continue to open their wallets.

Consumer spending, which makes up two-thirds of the US economy, is largely influenced by the state of the labor market; specifically, whether or not layoffs are higher than usual. Although job growth has been lackluster over the past year, new claims for unemployment benefits are at an all-time low. And as of mid-2023, wage growth has continued to outpace inflation.

That means Americans still have the means to continue spending — until they don’t. A sharp dip in employment, combined with the fact that it’s harder to find work these days, could force Americans to cut back on their spending.

And spending in recent months is already on the weak side. Retail sales, which comprise a large part of overall spending, fell 0.2% in January, following a cold December. It’s possible that the cold weather made spending difficult in January.

If the war with Iran drags on for months, the outlook could quickly darken, causing a recession as declining goods lead to less spending and, ultimately, a recession.

“In a K-shaped economy, an upside can spread quickly,” Heather Long, chief economist at Navy Federal Credit Union, said in a statement issued Friday.