Americans begin feeling better about economy

Gas prices are falling, households learn to deal with inflation.

After months of gloom, Americans are finally starting to feel better about the economy and more resigned to inflation.

Consumer sentiment, which hit rock bottom in June, has begun inching up in recent weeks. Gas prices are down. Decades-high inflation appears to be easing. And at the same time, Americans are making small changes — buying meat in bulk, for example, or shifting more of their shopping to discount chains — suggesting that many families are learning to deal with higher prices.

“While consumer sentiment still is fairly low by historic standards, we’re starting to see pretty dramatic improvements,” said Joanne W. Hsu, an economist at the University of Michigan and director of its closely watched consumer surveys. “It’s very much being driven by a slowdown in inflation, particularly with the decline in gas prices.”

That’s particularly good news for the White House, which has been hammered by criticism that it hasn’t done enough to address inflation.

Gas prices, which peaked at more than $5 a gallon in June, are down to about $3.74 a gallon nationwide. That 25% drop in costs has been substantial for many Americans, particularly those in lower-income households, where gas costs comprise a larger share of weekly expenses.

Overall inflation, meanwhile, has eased slightly — prices remained flat in July, though they’re still up 8.5% from a year ago — as a result of aggressive interest rate hikes by the Federal Reserve.

Even so, the impact on both pocketbooks and psyches has been swift. Measures of business conditions, short-term financial prospects and purchasing plans all improved in August, according to key metrics from the Conference Board. Consumer confidence increased that month after falling for three straight months, and the number of Americans reporting vacation plans reached an eightmonth high.

“When gas prices go down at the pump, people immediately feel better,” said Diane Swonk, chief economist at accounting giant KPMG. “Inflation is still high, but the fact that gas prices have come off record highs makes a huge difference in how much people are spending and their expectations for the future.”

The Fed has been moving swiftly to raise interest rates enough to contain inflation. Although there are signs that its approach is working — prices have stabilized, and home values are beginning to cool in some parts of the country — there is still concern that the central bank’s actions could tip it into recession.

The looming question, economists say, is whether the current calm signals a turning point for inflation or whether this is just a momentary reprieve before the economy worsens.

“The Fed still has a big challenge ahead, which is to cool inflation beyond gas prices and to control inflation before it fundamentally distorts people’s behavior,” KPMG’s Swonk said. “It’s getting very complex now, and the more complexity there is, there’s more chance of a misstep as well.”

Although inflation is still a top priority for voters in the run-up to the midterm elections, the share of Americans who say it is their biggest concern has fallen. Some 30 percent of Americans say rising prices are their No. 1 voting issue, down from 37% in July, according to a new NPR/PBS NewsHour/ Marist poll.