Jul 19, 2021 - Economy

Consumers complain about high prices, but buy anyway

Data: University of Michigan; Chart: Axios Visuals
Data: University of Michigan; Chart: Axios Visuals

Shoppers are outraged by how expensive some stuff is getting.

Why it matters: Consumer sentiment is important because it’s generally correlated with spending. Complaints about prices today and concerns about inflation down the road have caused the recovery in sentiment to stall.

Yes, but: Consumers are spending nonetheless. Retail sales unexpectedly grew strongly in June during a month when consumer prices rose by more than expected.

By the numbers: The University of Michigan’s widely followed consumer sentiment index unexpectedly tumbled to 80.8 in July from 85.5 in June.

  • Consumers have increasingly said they are worried about what inflation may look like one year and five years from now.
  • The report also found that consumers have never been more frustrated by the rising prices of homes, cars and durable goods like home appliances.
  • For these categories, a net 33% of consumers said it was a bad time to buy because prices were too high. This is an all-time record according to data going back to 1960.
  • The report found 71% of consumers thought it was a bad time to buy a home because prices were too high, while just 6% thought it was a good time to buy because prices were low.

What they’re saying: “Consumers' complaints about rising prices on homes, vehicles, and household durables has reached an all-time record,” Richard Curtin, the survey's chief economist, said in a statement.

  • “Purchase rates, however, have benefitted from record increases in accumulated savings and reserve funds.”
  • Indeed, some estimate that consumers accumulated $2.4 trillion in excess savings since the onset of the COVID-19 pandemic, suggesting that the consumers' pump is primed.

What to watch: Recent housing market data suggest sales volumes are about to turn up again, even as home prices continue to surge.

The bottom line: While higher prices will continue to have consumers incensed, hard spending data like retail sales confirm that they have the ability and willingness to make purchases anyway.

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