NerdWallet's Smart Money Podcast - How Consumers Feel About the Economy — and Why It Matters

Episode Date: June 12, 2024

Learn how consumer sentiment affects the economy and your finances, plus insights on job market trends and inflation impact. How do consumer sentiment indexes work and why should you care about them? What impact do these indexes have on the economy and your personal finances? Hosts Sean Pyles and Anna Helhoski discuss the intricacies of consumer sentiment, highlighting the University of Michigan's Index of Consumer Sentiment and The Conference Board's Consumer Confidence Index. They explain how these reports measure public feelings about the economy and why these sentiments matter in order to help you understand the influence of consumer opinions on economic trends and spending habits. Then, they delve into recent money news headlines, including job market trends and their implications for the economy. By examining the latest employment data, Sean and Anna provide insights into how job growth and unemployment rates influence Federal Reserve decisions and overall economic stability. They also break down the recent movement in GameStop stock following the return of day trader “Roaring Kitty” Keith Gill and explain how your insurance rates could be impacted by your car collecting data on your driving habits. In their conversation, the Nerds discuss: consumer sentiment, economic indicators, job market trends, consumer confidence index, personal finance, inflation impact, recession signs, economic forecasts, financial stability, unemployment rate, Federal Reserve decisions, economic growth, job growth, spending habits, employment data, interest rates, economic stability, financial trends, economic health, stock market trends, meme stocks, financial news, economic conditions, wage growth, business conditions, future economy, inflation rate, economic predictions, financial planning, job market analysis, consumer opinions, economic reports, financial data, job creation, market analysis, and economic insights. To send the Nerds your money questions, call or text the Nerd hotline at 901-730-6373 or email [e-mail]. Like what you hear? Please leave us a review and tell a friend.

Welcome to NerdWallet's Smart Money Podcast. I'm Sean Piles. And I'm Anna Helhosky. And this is our weekly money news roundup, where we break down the latest in the world of finance to help you be smarter with your money. We'll go deep into a single topic and then leave you with the latest money headlines. Today, we're talking about feelings. Is this a talk therapy podcast now, Sean? I think you know that neither of us is qualified to do that, Anna. No, I mean feelings about the economy, otherwise known as consumer sentiment. That makes more sense. Listeners, no doubt you've seen tons of headlines over the last couple of

years telling you how good the economy is, but how bad people are feeling about it. It's the vibe session, Sean. That's right. And there are two reports that measure those vibes. The University of Michigan's Index of Consumer Sentiment and the Conference Board's Consumer Competence Index. Both indexes are a reflection of how U.S. consumers feel about the current and future state of the economy. That includes the job market, wages, business conditions, and their own personal finances. The job of the index is to turn the opinions of hundreds of U.S. consumers into values that are then translated into a single number known as an index. Consumer sentiment is also a useful tool for crystal balling potential changes to the economy.

That's because how people feel about overall and personal finances translate to what they spend their money on. So here's how it works with the University of Michigan's Index of Consumer Sentiment, which is the most often cited index. It's derived from the university's Surveys of Consumers, where people are surveyed by phone and answer 50 questions. Yeah, they're asked things like, would you say you and your family are better off or worse off financially than you were a year ago? And do you think that the country will have good times ahead in the next five years? Or do you think that the country will have good times ahead in the next five years, or do you think there'll be widespread unemployment or depression?

It also asks about whether or not it's a good time to buy furniture or major appliances like a refrigerator. And it's important to note that this index is only a measure of about 600 people's sentiments. Yeah, Sean, and it relies on people answering questions by phone. If you're not someone who answers the phone or is put off by 50-question phone surveys, your opinions won't be reflected, and that could skew the results. So a good reminder, especially in election year, to take polls with a grain of salt. But there's a change coming soon. Starting in July, the University of Michigan's Index of Consumer Sentiment will be conducted online. But the other main consumer sentiment index is from the Conference Board, a non-profit think tank. The Conference Board's

Consumer Confidence Index used to be an every-other-month survey by mail, but today it's an online survey of about 3,000 people. It asks five questions to measure what people think about the current and future business conditions, employment, and income. Like we mentioned before, those answers are assigned values and then averaged into the index. So consumer sentiment usually falls during recession and lifts when the economy is growing. But we've had a pretty solid, albeit weird, economic picture for a while. Growth spiked last year, but inflation was high too. Unemployment hit a low, but again, inflation was high.

So basically, people just hate inflation. Shocker. Yep. And that's likely behind some of the low consumer confidence seen over the last year. The conference board's latest index showed that in May, the measure of attitudes about the current economy was down 9.4% from April. And that was pretty much the same for how people felt about the future economy. Sentiment dipped by 9.5% from April to May. Now, the next conference board index won't be out until June 25th, but the University of Michigan's index will be out on Friday. Over the last year, the Michigan Consumer Confidence Index

was down, then up, then down again. But by the beginning of the year, it looked like people were feeling better about the economy. Then in May, the index dropped again. So overall, what we're seeing in both indexes is a recent drop in consumer confidence. There's another reason why consumer sentiment is particularly important right now. Can you guess, Sean? Could it be that we are in a presidential election year? You would be right. How people feel about the economy could play a part in what people do in the voting booth. A recent CBS News and YouGov poll shows that in battleground states, the economy and inflation are both top issues among voters. We'll be keeping an eye out for the University of Michigan's Consumer Sentiment Index on Friday. You can check out nerdwallet.com to see the results of past indexes and the latest numbers.

Up next, a few money headlines in the last few days. Well, Sean, one of the things that keeps people feeling good about the economy is when there are plenty of jobs. And that's something we've had in spades over the last few years. True. The hot job market has been credited with helping the U.S. avoid a post-pandemic recession, but it's also part of the reason the Federal Reserve has hesitated to bring interest rates back down. Well, they've got more to consider with a scorching jobs report for the month of May. The Labor Department reports that employers added 272,000 jobs, well above the consensus estimates of 180,000 jobs. It's even higher than the average of 232,000 over the

previous 12 months. A good chunk of those gains came in the healthcare industry, as well as the government and the leisure and hospitality industry. But the unemployment rate ticked up ever so slightly from 3.9% in April to 4% in May. A year ago, the jobless rate stood at 3.7%, so that's going in the wrong direction. And if you're asking yourself how you can have all those jobs being created, but the unemployment rate going up, well, that can happen because of a bunch of factors, including that the two numbers come from two different surveys, kind of like we were talking about with consumer confidence.

As with so many of these facts and figures, they'll play into the Fed's decision-making around interest rates as it's meeting again this week. Anna, do you hear that? Uh, hear what? That meowing. I do not hear any meowing. Okay, it's more like a roar of Roaring Kitty. I see what you did there, Sean.

Yes, Roaring Kitty is back in the market and making waves yet again with stock in GameStop. Listeners, you may remember this name from about three years ago. A day trader going by Roaring Kitty, whose real name is Keith Gill, started what's now known as the meme stock craze. Yeah, basically, he started buying up shares in GameStop, the mall-based video game retailer, which at the time was kind of a nothing burger investing-wise. But he started a movement where thousands upon thousands of individual investors decided to hop on the GameStop wagon, sending its stock price soaring. And ticking off short sellers in the process, those folks who had essentially placed bets in the stock market that GameStop's stock price would go down. Right. Anyway, Gil and a whole lot of other people made a lot of money,

and plenty of meme stock investors also lost money. Hollywood made a movie out of it. Other meme stocks proliferated, and then Gil went kind of quiet. But he's back. Over the last few weeks, he started hinting on social media that he was back in the day trading game. Last Friday, he did one of his signature live streams, but things didn't go the way he might have hoped. Trading in the stock was halted more than a dozen times over the course of the trading day because of incredible volatility and GameStop share price closed down 40%, which is one of the reasons why we here at Smart Money say... Run away from meme stocks. Far away. Quickly.

Yes. In fact, unless you have money to burn, many financial advisors would recommend you stay away from investing in individual stocks altogether. Now, as we say, we are not investment advisors, so you, of course, can do whatever you want, and we're not here to tell you otherwise. But let's just say that I'm not putting my money anywhere near that stuff. Yeah, me either. Meow. Meow. And finally, shout out to the New York Times for a story over the weekend that opened my

eyes to something that I did not know. Anna, did you know that you could have a driving performance score, kind of like a credit score? I did not know that. Well, I think we all know that data is collected on us all the time by just about everything and everyone, right? Well, it turns out that your car is collecting data on your driving habits. And there are companies out there keeping score and sharing that info with your car insurance companies. Not all of them and not everybody has this, but it exists. I've heard of this as something you can opt into. Like your car insurance company says,

hey, if you use this app that tracks your driving, you could get a discount on your insurance. Yeah, that's been around for a few years. But in this case, the Times reported on apps that people use for other purposes, but that also gather what's called driver behavior analysis. Some of the apps it talks about include Life360, MyRadar, and GasBuddy. Yeah, those have options to opt in. So you can, for example, find a fuel-efficient route to wherever you're going or get an alert if a family member is in a car accident. And that information is both provided and gathered by a third-party analytics company called Arity, which is part of Allstate Insurance. And here's the key sentence in that story. What is not made clear when people sign up for the feature is that Arity also analyzes how risky their driving is for insurance purposes.

Oh boy. Yeah, this is one of those tiny fine print type things. And Arity is basically keeping a database full of individuals driving behavior that can then be shared with insurance companies when deciding your rates. Now, there are some reasons why this could be a good thing, including that it's about you as an individual risk instead of judging your driving by where you live or whether you're married or not, which some insurance companies do. But the creep out factor is pretty high.

And just the fact that most of us don't know that this is happening and it's buried in fine print. Yeah, I'd encourage folks to go read that piece for more info and then double check the apps that you're using. In the meantime, I might start actually coming to a complete stop at all stop signs. That's it for this week's money news. We always welcome your money questions and comments. Turn to the nerds and call or text us your questions at 901-730-6373.

That's 901-730-NERD. Or send us a voice memo at podcast at nerdwallet.com. And remember, you can follow the show on your favorite podcast app, including Spotify, Apple Podcasts, and iHeartRadio to automatically download new episodes. Today's episode was produced by Tess Biglin and edited by Rick VanderKneife. Sarah Brink mixed our audio. Here's our brief disclaimer. We are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances. And with that said, until next time, turn to the

nerds.