Inflation Has Consumers in a Recession State of Mind, Yet Optimism about Finances Hits Highest Level in Six Quarters

June 07, 2023 at 08:00 AM EDT

CHICAGO, June 07, 2023 (GLOBE NEWSWIRE) -- Many consumers are in a financial conundrum. The latest TransUnion (NYSE: TRU) Consumer Pulse study found that 44% of Americans believe the U.S. economy is in a recession or will be by the end of June. Three in four consumers (75%) believe a recession will occur by the end of 2023. Despite these concerns, about six in 10 Americans (57%) reported optimism about their household finances for the next 12 months – the highest level since the last quarter of 2021.

What’s driving these conflicting notions? Inflation. About half (46%) of consumers reported their income is not keeping up with inflation for everyday goods such as groceries, gas, etc. 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. 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.

And while the Federal Reserve has increased interest rates 10 times since March 2022, rising interest rates (41%) only ranked as the fourth greatest financial concern for consumers, though that percentage did rise from 39% in Q1 2023 and 34% one year earlier in Q2 2022.

Greatest Financial Concern by Generation (Percent Ranked as Top 3 Concern)

Top Concerns	Overall		Gen Z		Millennials		Gen X		Baby Boomers
Inflation	79	%	68	%	73	%	82	%	89	%
Recession	53	%	45	%	50	%	56	%	57	%
Housing Prices (Rent or Mortgage)	45	%	53	%	40	%	35	%	14	%
Interest Rates	41	%	39	%	43	%	41	%	40	%

“We are living in uncharted territory from a consumer credit perspective,” said Charlie Wise, senior vice president and head of global research and consulting at TransUnion. “The combination of rising interest rates and elevated inflation, while not uncommon from a historical perspective, is an unfamiliar experience for many consumers, especially those in the Gen Z and Millennial generations. It’s also likely why a number of people are expressing that they feel they are in a personal recession or soon will be in one, with costs rising faster than their incomes. Conversely, a majority of Americans are optimistic about their financial future. The No. 1 reason: the unemployment rate remains near record low levels. As long as the employment situation remains stable, most employed individuals have the resources to weather inflation and higher interest rates – at least in the near-term.”

Consumer Credit Health Down, But Not Worrisome

As consumers send mixed messages about the economy, TransUnion’s proprietary gauge on consumer credit health trends – the Credit Industry Indicator (CII) – posits 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 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.

Lower levels for the CII generally indicate a decline in the overall health of the consumer credit market. However, 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.

“The CII has been weighed down recently by cooling credit demand and a drop in supply by lenders. Yet, the declines we have observed are not concerning, and levels indicate the consumer credit market remains on solid footing,” added Wise.

Optimism Highest Among Younger Generations

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.

“A foundation for weathering a challenging macro environment, where costs of everyday items are up and interest rates are rising, is to be gainfully employed,” concluded Wise. “Employed consumers are far better able to make payments on debts they may have and to spend on both discretionary and non-discretionary items, both vital for the health of the U.S. economy. While the employment situation has remained strong for quite a while, it will be one of the metrics we follow most closely in coming months to gauge the future outlook for the U.S. consumer.”

For more information about the Consumer Pulse study, please click here.

About TransUnion (NYSE: TRU)

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