Why are we so glum?

Markets are exhibiting optimism for a soft landing despite recent volatility, driven by declining inflation, historically low unemployment, and potential Federal Reserve rate cuts. However, consumer sentiment remains negative, with nearly two-thirds believing the nation is on the wrong track, influenced by key factors.

Housing affordability has deteriorated significantly due to a 5.5% interest rate hike by the Fed, causing mortgage rates to surge from 2.82% to 6.90%, resulting in decreased home sales and locking current homeowners into their mortgages. Although headline inflation is trending towards the Fed's 2% target, a longer-term view shows a troubling 15.3% inflation rate increase over the past three years, impacting consumer perception.

Real earnings have stagnated since their 2021 peak, with inflation eroding nominal wage gains, contributing to consumer dissatisfaction. Additionally, historical comparisons reveal lower misery index readings prior to COVID, amplifying current discontent.

If inflation continues to decline and economic strength persists, consumer outlook may improve alongside housing market recovery and rising real wages.