White House advisors are closely monitoring consumer sentiment as a key economic indicator amidst ongoing inflation, high interest rates, and stagnant wage growth. The Consumer Sentiment Index, which measures the financial confidence and purchasing power of average Americans, has seen a significant increase of over 30% since the end of last year.
In March, the index rose to 79.4 from 61.3 in November. Despite a slight dip in the first half of April due to higher-than-expected inflation, the Biden administration remains cautiously optimistic that the overall upward trend indicates a potential easing of economic frustration.
“I place a tremendous amount of importance on how people feel about the economy,” Jared Bernstein, President Joe Biden’s chief economist, told CNN. “Consumer sentiment answers a very important question, which is: ‘Are you on the right track?’”
The biweekly data, compiled by researchers from the University of Michigan, is considered more forward-looking than economic growth or job creation data. However, critics argue that the increase may be too little, too late for the president’s political fortunes, particularly as the trend during Biden’s term has been less than favorable.
Consumer sentiment is particularly sensitive to inflation, as evidenced by its drop to 77.9 in April. The index hit a historic low of 50.0 when inflation peaked in June 2022, indicating that consumers felt worse about their finances two years into Biden’s term than they did during the Covid-19 pandemic, the Great Recession, the dotcom bust, or the Savings & Loan Crisis.
Former White House chief of staff Ron Klain argued that President Biden is focusing too much on local infrastructure projects and not enough on household financial issues. A senior administration official confirmed that Klain had already shared his views with top Biden aides.
Despite the challenges, the Biden administration plans to continue executing its agenda, hoping that rising household incomes will lead to an increase in economic indicators. However, some economists believe changing voters’ perception of the economy in a short amount of time will be difficult.
“If you’re down 20 points in a football game at halftime, and then you score a field goal,” said Tomas Philipson, former acting chair for the Council of Economic Advisers under President Trump, “that doesn’t mean you’re winning.”