War in Ukraine. Outsized inflation. Supply chain disruptions. A lingering pandemic.
Today’s global upheavals all contribute to a sense of general economic anxiety among investors and, more broadly, the American public. The University of Michigan’s Consumer Sentiment Index — a metric that gauges how consumers view the economy and their own financial prospects — is at its lowest point since 2011.
But is the worry misplaced?
A quick drive past a gas station might suggest it isn’t, but it also wouldn’t describe the full picture. The overall, sustained health of the economy is a reminder that we must view events with proper perspective.
Consumer sentiment currently appears to be running counter to other prominent indicators. For example:
- More people are employed as the unemployment rate ticked down to 3.6% in March.
- Wage growth is at its best rate in years.
- The stock market’s returns continue to grow at the same healthy rate they have since the middle of the last century.
These factors should not blind us to what is going on in the world. Unquestionably, the war in Ukraine is a tragedy and creating global waves, from humanitarian crises to gas pump pains. Certainly, too, inflation and the supply chain are factors that lead to volatility in the markets.
But again, we come to perspective. In the past 20 years that I’ve been a wealth adviser, for example, I’ve witnessed a vast range of economic disruptions — 9/11, the tech bubble, the Iraq War, a debt downgrade, a housing crisis and the massive ensuing recession, energy fluctuations and… well, the list could go on for quite a while. Through it all, we’re still standing — still thriving.
How, then, do we explain the lagging consumer sentiment? A few thoughts that immediately spring to mind:
1. We’re always connected
It’s not time for a Luddite screed, but there is little doubt that many Americans (maybe it’s fair to say most?) lead an always-online lifestyle that is complemented by a 24/7 news cycle — whether they want to hear the day’s headlines that often or not. Studies routinely find a link between poor mental health and overexposure to social media.
Does this mean investors and consumers should throw their modems in the trash and block out negative news stories? Of course not — the world faces serious problems and an informed public can make a difference. But by regularly “unplugging,” taking the time to get away from unproductive online stories, arguments and biased pundits, it can easily create more brain space that encourages financial thinking and decisions based on facts, rather than emotion.
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Source: https://www.kiplinger.com/investing/economy/604715/you-may-be-worrying-about-the-economy-too-much