Consumer Says: Breaking down the Supply Chain and Inflation indexes

What's new in the economy?

• Inflation has cooled nearly all the way to the Federal Reserve’s 2% target: Inflation as measured by the Personal Consumption Expenditures (PCE) price index, the Fed’s preferred measure, was 2.2% in August, down from a high of 7.2% in June 2022. 
• Good news in the labor market: After a couple months of softening data, the September Bureau of Labor Statistics (BLS) Employment Situation report presented a rosier picture of the labor market. Morning Consult’s Unemployment index had also dropped through September, in line with the improvements in the BLS unemployment rate.
• Easing inflation and improvement in the labor market keep a “soft landing” within the realm of possibilities, but downside risks could put pressure on the economy. Tightening conditions for consumer finances, supply chain headwinds from geopolitical conflicts and hurricanes, and reduced appetite for the average consumer’s spending could present future challenges.

Consumer says...

• Consumers are noticing easing inflation: Morning Consult’s Price Surprise index, which measures the net share of consumers reporting higher than expected prices, has eased considerably since tracking began. In other words, not only has inflation come down back to near normal levels, but consumers are noticing this themselves in their everyday purchases.

• When the price of a potential purchase is higher than expected, consumers have become less likely to follow through with the purchase. Although a shrinking share of consumers are encountering higher-than-expected prices, those who do, are increasingly likely to walk away from the potential purchase as measured by Morning Consult’s Price Sensitivity index.

• Recently, consumers have increasingly been trading down, more often opting for cheaper alternatives. Following a similar path to price sensitivity, Morning Consult’s Substitutability index, excluding housing, has also been climbing through 2024, reaching a new high in September.

• Consumers have also noticed more plentiful supply: Morning Consult’s supply-side indexes, including the Delivery Delays index and the Purchasing Difficulty index, have both cooled considerably since tracking began. Plentiful supply has helped to cool inflation, but recent headwinds could be a setback – hurricanes and increasing geopolitical conflicts could threaten to disturb supply chains for some products, potentially resulting in inflationary pressures.

Further reading:

• You can read more in depth about our Supply Chain and Inflation indexes here, including the calculations behind the indexes and a categorical breakdown. Morning Consult collects data on 20 product and service categories within this survey, with demographic breakouts regularly reported across 16 different groups. This data is updated every month!
• We also published a memo this week on the trends behind the Supply Chain and Inflation indexes since tracking began. 

Stay tuned! We'll be back discussing the latest econ news with our own research and insights on another episode two weeks from now on October 23rd.