U.S. Consumers Losing Confidence As Russia Invades Ukraine, Inflation Flares

As the prospect of a Russian invasion of Ukraine became increasingly likely, President Joe Biden told the American people that the conflict would have ramifications here at home, especially when they fill up their cars.

“I want to limit the pain the American people are feeling at the gas pump,” Biden said on Feb. 22. “This is critical to me.”

According to the most recent Forbes Advisor-Ipsos Consumer Confidence Weekly Tracker, Americans aren’t feeling particularly optimistic.

The headline confidence index declined significantly to 53.0, down 3.1 points from two weeks prior, taking it to its lowest level since early January. Since the outset of the pandemic, the index is down 7.1 points, and the current reading is well below the 2021 high of 62.4 in the final weeks of June.

Given recent events, it’s no wonder consumers are feeling downbeat. The S&P 500 has flirted with correction territory—a fall of 10% since its most recent high—while inflation and gas prices have hit American pocketbooks hard. Despite a strong labor market, for instance, inflation-adjusted earnings are down 1.7%.

“A short-term spike in oil prices to $120 per barrel is possible because sanctions against Russia would curtail its ability to export oil and that would likely reduce global supply,” said Tim Pagliara, the chief investment officer of Franklin, Tenn.-based wealth management firm CapWealth. “Oil prices are likely to see the largest reaction to the Russia-Ukraine uncertainty, more so than stocks and bonds.”

A Tough Start to 2022

It’s been a rough start to the year, and there’s little sign that events will about-face any time soon.

The most recent Consumer Price Index (CPI) report showed that prices rose 7.5% in January compared to the same period the year prior, the highest jump since February 1982. The drastic increase was driven primarily by even more drastic energy prices, which jumped 27% over the past year.

Drilling down, gasoline accounts for a not-insignificant amount of that bump, logging a 40% price increase since January 2021.

The Russian invasion of Ukraine, along with international sanctions, including those that would restrict Russian oil, could help push energy prices even higher.

January’s CPI report followed months of persistently high inflation, which is why Federal Reserve Chair Jerome Powell made a hawkish turn a few months ago: The Fed decided to taper its bond purchases and raise interest rates. But it was the decision to let its balance sheet fall and reduce the number of bonds it held sometime toward the end of 2022 that caused stock market investors to panic.

The S&P 500 is down 12.5% so far this year, thanks in part to flagging demand for growth companies like tech stocks that depend on cheap financing—which is under threat from higher interest rates. Other risk-on assets, such as Bitcoin, have also fallen dramatically while investors flock to safe havens, such as gold.

It’s unclear just how long the market misery may last, but if it doesn’t reverse course 2022 may indeed be a rough year.

“[H]istory says (but does not guarantee) that should the market begin to show signs of recovery over the coming days and weeks, this correction may have run its course,” said CFRA chief investment strategist Sam Stovall. “If not, the worst is yet to come.”

Americans Are Worried About Their Personal Finances

High inflation, the war in Ukraine and poor stock market performance have combined to produce a down-right grumpy American consumer. The four sub-indices of the Forbes Advisor–Ipsos survey help tell the story.

The worst performing of these is the current index, which asks people about their immediate financial situation, recorded the lowest level of 44.7. That’s down 3.3 points from two weeks prior and almost 9 points below its early March 2020 reading.

It would seem that high prices dwarfing any raises, along with declining 401(k) balances in the face of diminishing market returns, has caused pessimism.

The next weakest sub-index is the investment index, which fell 2.8 points from two weeks prior to a level of 46.9. This reading is almost 8 points lower than before the pandemic, even though stocks soared in 2020 and 2021. A poor start to the year, along with a sense that stocks at some point will come back to earth, may be contributing to the depressed levels.

Americans are more confident when it comes to their expectations for the future (58.9) and their job prospects (64.7). That makes certain intuitive sense: Covid-19 cases are falling, states are lifting social distancing restrictions and the unemployment rate is low.

Still, both readings dipped over the past two weeks, with expectations taking the biggest fall out of any sub-index.

With a return to normal life for all Americans within reach, you’d expect consumers to feel a bit better. But more weighs on the minds of U.S. consumers than the novel coronavirus and its variants.

More from Forbes Advisor