How consumers feel about the economy as the holidays approach

EYDER PERALTA, HOST:

Many people are not feeling very festive about the economy as the holidays approach, but they're not quite as gloomy as they were a month ago. NPR's Scott Horsley has been keeping tabs on the economic spirit of the season, and he joins us now. Hey, Scott.

SCOTT HORSLEY, BYLINE: Hi, Eyder.

PERALTA: So, Scott, with 19 shopping days till Christmas, it sounds like people are feeling a little Grinchy. What's going on?

HORSLEY: Yeah. We just got some fresh data from the University of Michigan, which conducts regular monthly surveys on how people are feeling about the economy. And the early readout for December shows a little improvement from the previous month. But Joanne Hsu, who oversees the survey, says economic sentiment is still pretty downbeat compared to where it was this time last year.

JOANNE HSU: Overall, consumers are not feeling that confident about the economy. They don't feel like they're thriving.

HORSLEY: And that's backed up by some numbers we just got from the Commerce Department. These are not as timely as the Michigan survey. They're from September, but we're just getting them now because they were held up by the government shutdown. They show that inflation in September was still pretty high. Prices were up 2.8% from a year ago. On the plus side, inflation doesn't seem to be getting a lot worse. But unfortunately, it's not getting much better either.

PERALTA: Is that what's making people so anxious about the economy?

HORSLEY: High prices are certainly part of the story. The Commerce Department says personal spending increased in September, but just barely enough to keep pace with those rising prices. So people feel like they're spending more, but they're not getting any more to show for it. You know, they're just kind of treading water, which is frustrating. Spending on big-ticket durable goods was actually down in September, and Joanne Hsu says that suggests people are feeling anxious and keeping a tight grip on their money.

HSU: When they feel confident, they tend to spend more, but if they feel less confident, they tend to spend less. Right now, consumers are feeling pressures on both sides of their budget. They remain very frustrated by the persistence of high prices, but they're also seeing some weakening prospects for their income.

HORSLEY: Now, wages are still climbing on average, but not as fast as they had been, and there's concern that the job market is losing steam. You know, unemployment's climbed from 4% at the beginning of this year to 4.4% in September. That's still low by historical standards, but people feel like, gosh, if I'm struggling to pay the bills now, what happens if the job market really turns south and a lot of people get laid off?

PERALTA: So next week, the Federal Reserve will hold its last policy meeting of the year. How are Fed officials approaching this?

HORSLEY: Yeah. They're really in a tough spot, you know, because inflation is still well above their target, and ordinarily, the central bank would try to curb inflation by keeping interest rates high. But the Fed's also worried about that softening job market. And the way it usually deals with that is by lowering interest rates. So there's a real tug-of-war here. The Fed did cut rates at its last two meetings, but minutes show there were strongly differing views about whether a third cut would be warranted this month. Members of the committee who are most worried about unemployment say yes. Those who are more worried about inflation say no. So we could see a real split vote next week.

PERALTA: And what does that mean for workers and shoppers?

HORSLEY: Well, right now, markets think it's likely the Fed will cut its benchmark interest rate by another quarter point. It's not a slam dunk, and there could be more dissents than usual. But if those forecasts are right, that would make it a little cheaper to borrow money to buy a car or get a new refrigerator or whatever. And the idea is that increased demand would perk up the economy a little bit and prompt employers to keep more people on the payroll. In that University of Michigan survey, people do say they feel a little more confident about where the economy is going to be in the future than where it is right now, although even that future outlook is not all that optimistic.

PERALTA: NPR's Scott Horsley. Scott, thank you.

HORSLEY: You're welcome.

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