CHICAGO–Many consumers are in a “conundrum,” according to a new study from TransUnion, which found a majority are expecting an economic downturn even as they remain optimistic about their own finances.
TransUnion’s newest Consumer Pulse study found 44% of Americans believe the U.S. economy is in a recession or will be by the end of June, and 75% believe a recession will occur by the end of 2023. And yet despite that, Transunion said it also found 57% of Americans reported optimism about their household finances for the next 12 months – the highest level since the last quarter of 2021.
The Big Driver
What’s driving these conflicting notions? According to TransUnion, it’s inflation.
“About half (46%) of consumers reported their income is not keeping up with inflation for everyday goods such as groceries, gas, etc.,” the company said. “That’s understandable when one considers that inflation rose to 40-year high levels in mid-2022 and, despite a gradual decline over the past year, remains elevated at twice the rate it was prior to the pandemic.”
The Q2 2023 Consumer Pulse study is based on a survey of 3,000 American adults between April 25-May 9, 2023.
TransUnion reported that for the sixth consecutive quarter, consumers indicated that inflation is causing them the most anxiety, with 79% reporting it as one of their top three financial concerns. Recession (53%) and increased housing prices on rent or mortgage (45%) were the next highest concerns.'
Consumer Credit Health ‘Down, But Not Worrisome’
As consumers send mixed messages about the economy, TransUnion reported its proprietary gauge on consumer credit health trends – the Credit Industry Indicator (CII) – shows a slight decline occurring in the credit markets. The CII decreased to 110 in Q1 2023, down from 113 the previous quarter and 116 one year earlier, though the overall level indicates that credit markets remain relatively healthy, the company reported.
The CII is a quarterly measure of depersonalized and aggregated consumer credit health trends that summarizes movements in credit demand, credit supply, consumer credit behaviors, and credit performance metrics over time into a single indicator, TransUnion explained, adding that lower levels for the CII generally indicate a decline in the overall health of the consumer credit market. “However,” TransUnion added, “the fluctuations in the metric are low, especially compared to larger swings observed during recent crises, such as the onset of the pandemic when the CII dropped from 113 in Q1 2020 to 55 in Q2 2020.”
Optimism Highest Among Younger Generations
According to TransUnion, part of the reason concern levels are not high: consumers’ optimism about their household finances in the next 12 months is high. Gen Z (73%) and Millennials (69%) are most optimistic about their finances, especially compared to Gen X (51%) and Baby Boomers (41%).
More than half of Americans (51%) expect their income to rise in the next 12 months compared to 41% in Q1, led by Millennials and Gen Z. These generations expect their income to rise in the next year, 68% and 66%, respectively, compared to 46% for Gen X and 27% for Baby Boomers, TransUnion said.
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