Don't Be Fooled By Improving Personal Finance Survey Numbers

• Author: Chris Remington
• Posted: 2024-05-10

Americans' perceptions of their personal finances are rapidly improving as the country begins to slowly open back up for business. However, whether this sentiment shift is a lasting change in opinion that can spark an economic recovery or is merely a temporary reaction to being allowed out of the house remains to be seen. In the meantime, some economic metrics are improving. However, it may take a considerable amount of time for Americans' personal financial situations to return to where they were before COVID-19 hit.

Retail and Consumer Confidence Numbers Have Been Improving

There have been several numbers that have been released recently that show that good economic times for Americans may be just around the corner. The polling company Gallup asked Americans how they feel about their own personal financial situations. In April, when most of the country was under stay-at-home orders, 49% of the country felt that their own financial situation as excellent or good. This was down from 56% who responded this was before the pandemic hit. By the end of May, this number has rebounded to 53% as more Americans are feeling confident. The current reading of this index is higher than during the Great Recession, showing that the economic trough here may not be as bad as the last recession.

In addition, retail sales, which are another measure of confidence in one's financial situation, are also improving. The more people believe that their situation is good, the more assurance that they have to spend money. In May, U.S. retail sales surged 17.7%. This is by far the largest monthly jump ever. However, this came on the heels of a dismal April retail sales report and was 6.1% lower than the corresponding period last year.

Look at the Numbers in Perspective Before Celebrating the Economy

Thus, before people begin to celebrate a large U.S. economic recovery, some additional perspective may be important. The top-line numbers may look good, but they are in comparison to terrible numbers in March and April. The U.S. economy and personal finances still have a long way to go before they recover from their lofty pre-pandemic perches. In addition, the May bump may have been the proverbial "low-hanging fruit" that is grabbed when stores begin to reopen after being closed for an extended period. A year-over-year retail sales decline of 6% represents some serious contraction, and that is where we are today. The easy gains have been had, and it may take some considerable time to get back to the level where the economy was in 2019.

In addition, the household confidence survey numbers may also be misleading when it comes to personal finance. When it comes to COVID-19, there is a tale of two economies. Many have been able to avoid some of the harshest personal finance impacts of the pandemic. They are still employed and are able to work at home. Where COVID-19 has been especially disastrous is for those who work in the service industry. They have lost their jobs in large numbers. Thus, when 53% of Americans say that they feel confident financially, the depth of the lack of confidence for the 47% may be getting worse. The people who lack confidence may not regain it anytime soon because they are either jobless or have seen their businesses shattered.

Further, responses to these surveys may be colored by respondents' political leanings as opposed to their actual financial situations. In other words, they may respond favorably because they feel that a perception of a strong economy benefits their preferred candidate. This may not mean that they go out and spend more money or hire people for their business.

Thus, people who look at these headline numbers need to take them with a grain of salt. When it comes to your personal finances, America is not out of the woods yet. You still need to be cautious. While stores are open again, you should not rush to spend money and should keep building your personal emergency fund. Do not be fooled when there is celebration of encouraging economic numbers right now because, what may appear encouraging on the surface, now has multiple layers of nuance that could merit caution. Even if the worst may be over, there is a big difference between an economy bouncing off of the bottom and a robust economy that is growing at a rapid clip. You should maintain caution in your personal finances.