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Consumer Sentiment Drops Again, Starts Downward Trend

The University of Michigan’s consumer sentiment index report revealed that consumer sentiment in the United States dropped by about 8.2% from January’s rate. Now, the index reads at about 61.7. Compared to consumer sentiment a year ago, February’s current rate is 19.7% lower. Economists are already calling this drop in consumer sentiment quite large — even stunning in the major drop between months — and declaring that this may be a downward trend for the country, when it comes to consumer sentiment.

Consumer sentiment is important to track for the economy, and for analysts, for a variety of reasons. Often, consumer sentiment allows analysts to forecast just how consumers are going to spend their money. If sentiment falls, this means that consumers are less likely to spend money, which could in turn result in an economic slowdown. However, a fall in consumer sentiment doesn’t necessarily mean that this will happen, as consumers sometimes do not spend how they feel.

Often, consumer sentiment is just a record of how consumers are feeling at this given time. But it might not impact how they spend money too much. Consumer sentiment has fallen quite a bit in February when compared to just a month ago — but not all parts of the economy have been hit as a result. For example, the demand for housing is still high and consumers are still seemingly willing to invest in a house, even a higher-priced house than normal, amid this lower consumer sentiment. The demand for mortgages has fallen recently, though this is likely because the rates on loans have risen. 

Economists believe that this latest drastic drop in consumer sentiment is a result of a variety of factors. Rising inflation, personal financial declines, and low confidence in the government’s economic policies seem to be the main reasons, according to economists. Tensions between the United States and Russia also seem to be fueling this drop in consumer sentiment. The ongoing COVID-19 pandemic — and the many issues that have arisen from this pandemic, such as global supply chain issues — are also to blame. 

According to this new data, it does appear as if the country is in a downward trend when it comes to consumer sentiment. Ongoing escalations in all parts of the country, from foreign affairs to economic policies, may continue to dampen sentiment around the United States. 

However, even with this downward trend in consumer sentiment, the economy is still going strong in the new year. While there are still major issues within the economy, such as within the labor market, that still need to be worked out, the economy is faring well, all things considered. Consumers may not spend that much money in the upcoming weeks and months, but analysts already foresaw this.

Many businesses and economists believe that consumers will start to willingly spend more money in the spring — and mainly in the summer. Big-ticket items, such as cars or washing machines, will likely be purchased during this time, as well, according to economists. 

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