Americans' economic hopes plummeted to decade lows in January as Omicron overpowered the US

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Americans' economic hopes plummeted to decade lows in January as Omicron overpowered the US
City workers hand out take-home Covid-19 test kits in lower Manhattan on December 23, 2021 in New York City.Spencer Platt/Getty Images
  • The University of Michigan's sentiment index fell to 67.2 in January, the lowest since November 2011.
  • The Omicron surge and still-elevated inflation fueled most of the drop, the survey's chief economist said.
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Americans are the most pessimistic about the economy they've been in a decade — with spirits even lower than in the early pandemic lockdowns in spring 2020.

The University of Michigan's Consumer Sentiment Index sank to 67.2 from 70.6 in January, according to data published Friday. Economists surveyed by Bloomberg expected sentiment to slide to 68.7. The final January figure is the lowest since November 2011 and sits 11.8 points below levels seen one year ago.

The broader economic backdrop is much improved over the past year. Vaccine rollouts allowed the country to reopen and revived economic activity. The unemployment rate sits near historic lows, and wages have been growing at the fastest rate in decades. Data out Thursday showed the US economy growing 5.7% through 2021, the fastest pace in nearly four decades.

Yet for all the recovery's progress, the Omicron variant's spread has kept sentiments historically bleak. Daily virus cases peaked on January 10 as holiday travel spread Omicron across the country. Infection counts have since turned lower, hinting the Omicron wave will subside quickly as it has in other countries. Yet the downturn has only just begun, and case counts still sit much higher than the peaks of previous virus waves.

The university's measure of current economic conditions staged a smaller drop, falling to 72 from 74.2 through the month. Consumer expectations saw the biggest decline, with the index tumbling to 64.1 from 68.3.

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The Delta and Omicron variants "were largely responsible" for the drop in sentiment through the fall and winter, but several other factors dragged on peoples' optimism, Richard Curtin, chief economist for the University of Michigan's Surveys of Consumers, said in the report. Elevated inflation reversed much of wage gains made over the past year, leaving workers with weakened buying power.

Confidence in the government's economic policies is also the lowest its been since 2014, Curtin said, as most early pandemic aid has now fully dried up.

Even attempts to fight inflation could pull sentiment lower, the economist added. Federal Reserve Chair Jerome Powell indicated on Wednesday that the central bank could start raising interest rates in March as it looks to cool price growth.

Higher rates are among the most effective ways to curb inflation, but people "may misinterpret the Fed's policy moves to slow the economy as part of the problem rather than part of the solution," Curtin said. Consumers could overreact to rate hikes and plunge the country into a new era of pessimism, especially considering lasting uncertainties around the pandemic and global recovery, he added.

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