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Consumers Are Optimistic About Their Finances. But Does Their Outlook Match Pandemic Reality?
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Consumers Are Optimistic About Their Finances. But Does Their Outlook Match Pandemic Reality?

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Consumers Are Optimistic About Their Finances. But Does Their Outlook Match Pandemic Reality?

Consumer confidence continues to tick upward, but there’s still a gap between outlook and reality for many Americans.

This week, the Forbes Advisor-Ipsos Consumer Confidence Weekly Tracker saw an all-time high for its expectations index, which measures consumers’ outlook on their personal financial situation, community economy and employment. It reached 70.6 (out of 100)—the previous record of 69.1 occurred in February 2018.

The survey, conducted by Ipsos, measures consumer sentiment over time.

Consumer outlook on economy reaches pandemic high

The expectations index is currently 9.2 points higher than its historical average, indicating that Americans are feeling renewed confidence as vaccination efforts continue and local economies reopen

Consumers Are Very Optimistic—But Do Their Spending Habits Match?

Last week, the Centers for Disease Control and Prevention (CDC) revised its travel guidelines for people who have been fully vaccinated, saying they can travel domestically and in some cases internationally without being tested for Covid-19. U.S. airlines have started adding flights back onto their schedules for popular domestic summer destinations, in response to an increase in ticket sales over the past few weeks. 

Read more: When Will Travel Recover? 

Auto sales have returned to pre-pandemic levels, and buyers are snapping up homes so quickly there’s a shortage of houses for sale.

But there can be a gap between outlook and reality because the expectations index measures where people think they’ll be financially six months from now. 

“Given the whiplash we’ve all experienced over the last year, we’ve seen a surge in expectations because virtually all people are expecting things to get better,” says Chris Jackson, senior vice president of public affairs at Ipsos. As life continues to get closer and closer to what we remember as normal, Jackson says, the expectations index will level off and be more in line with overall consumer confidence (currently at 61.2, also a pandemic high this week).

So when we think about expectations for the future, that’s not exactly a sign that things are great today. Retail sales dipped in February after a surprising jump in January—implying consumers slowed down their shopping once their second stimulus payments ran out

There still remains a gulf between those who were able to dodge most of the pandemic’s economic impact—those who may be ready to make big purchases or plan a trip—and people who are still mired in its effects.

There were 744,000 new claims for unemployment in the U.S. last week, a number that’s remained stubbornly high over the past few months. And in March, more than 5 million people were receiving Pandemic Emergency Unemployment Compensation (PEUC), which extends unemployment benefits for people who have exhausted their eligible benefit weeks.

Low-Earning Americans Remain Anxious About Investing

The widening split between the haves and have-nots is reflected in the investment index, which measures consumers’ purchasing and investment confidence, along with their personal financial situation.

The overall investment index reached 58.2 this week, an increase of 2 points over last week and one of the highest readings ever for this index. Markets have been performing well despite the pandemic, which may have some people celebrating gains in their investment portfolios.

Wealthiest Americans Getting More Confident About Investing

But success on the stock market can conceal anxiety about financial health. The investment index varies greatly depending on who you ask. While households earning $100,000 or more had an investment index of 70.1 out of 100, it dropped to just below 59 for households with incomes between $50,000 and $100,000. For the lowest earners—households with incomes below $50,000— the index sits at just 48.4. That’s a nearly 22 point gap between the highest and lowest earners.

Those feeling less optimistic about their ability to invest could be facing financial setbacks that follow them long after the pandemic ends.

Half of non-retired adults say the economic effects of the pandemic will make it harder to achieve their long-term financial goals, according to a January survey from the Pew Research Center. More than 40% of adults who said their financial situation has worsened since the pandemic began expect it will take at least three years for their finances to recover. 

Setbacks like a pay cut, layoff or needing to take on new debt could keep people from putting away as much money as they’d like to for retirement—or may prevent them from saving at all.

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