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- The University of Michigan's Consumer Sentiment Index fell to a 10-year low on Friday.
- The decline comes even as the stock market, housing prices, and economic output have hit record highs.
- Here's why consumers are having a souring outlook on the economy despite recent gains.
Consumer confidence fell to a 10-year low on Friday, dropping below the lowest levels seen during the COVID-19 pandemic and approaching the same levels coming out of the Great Recession.
The University of Michigan's Consumer Sentiment Index fell to 66.8 in its preliminary November report, well below October's final reading of 71.7 as well as the median forecast of 72.4. Consumers haven't been this gloomy since November 2011.
The souring economic outlook among consumers comes even as the stock market, median housing prices, and economic output as measured by GDP continue to hit all-time highs.
On top of that, a record number of American's are quitting their jobs, with 4.43 million workers handing in resignation letters in September. That signals American's have confidence in the underlying labor market.
So what's driving the disconnect between consumers' view on the economy and asset prices' unrelenting gains?
It can mostly be pinned to inflation, according to Richard Curtin, the University of Michigan survey's chief economist.
The decline in consumer sentiment was due to "an escalating inflation rate and the growing belief among consumers that no effective policies have yet been developed to reduce the damage from surging inflation," he said, adding that "one-in-four consumers cited inflationary reductions in their living standards in November, with lower income and older consumers voicing the greatest impact."
Curtin's comments reflect another driver behind the divergence between record high stock prices and a less confident consumer: rising inequality.
Studies have found that about half of the US population doesn't have a significant stake in the stock market, meaning they haven't benefited from the more than doubling of the S&P 500 since the COVID-19 low last year.
And while 60% of Americans own real estate, that still leaves a big chunk of the US population not benefiting from rising home prices.
Finally, the growing political partisanship in America has had an outsized influence on the results of the consumer confidence survey, according to the University of Michigan.
Most Democrats expressed optimism about the economy or largely ignored the threat of rising inflation, but most Republicans were concerned about the economy and highlighted inflation as one of many reasons to be worried, according to the survey.
"Partisans aligned with the President's party have adopted very positive moods, and those in the opposing camp very negative moods," Curtin explained.
To be sure, wage gains should help soften the blow of higher prices for many consumers. But if a transitory period of inflation becomes more persistent, it will be hard to close the gap between consumer sentiment on the economy and the actual underlying economy.