A third of Americans expect their finances to get worse this year

• Thirty-two percent of Americans expect their finances to worsen through the year, according to the University of Michigan.
• That's the largest share since the university's sentiment survey started in the mid-1940s.

Between slowing wage growth, widespread supply chain problems, and sky-high inflation, it's no surprise Americans aren't feeling great about the economy.

Yet new data from the University of Michigan reveals a large swath of the population bracing for a tougher time ahead. Thirty-two percent of surveyed adults expect their finances to worsen over the next 12 months, the university's Surveys of Consumers said in a Friday report. That's the largest recorded share since the survey started in the mid-1940s.

The slowing wage boom is also cause for greater concern. Half of surveyed households anticipate their inflation-adjusted incomes to drop through the year, according to the report, meaning inflation will outpace wage growth. The reading comes after government data showed the average hourly wage rising by just $0.01, or 0.03%, in February, badly missing forecasts and signaling the historic pay gains seen through the pandemic could be fading.

Americans' overall moods broadly worsened over the past month according to the University of Michigan. Consumer sentiment sank to 59.4 from 62.8 in March. That's also down from a year-ago reading of 84.9 and marks the most pessimistic sentiment in nearly 11 years. The only two periods to feature bleaker financial sentiments since the survey was first conducted were the recession of the early 1980s and the Great Recession.

"Inflation was mentioned throughout the survey, whether the questions referred to personal finances, prospects for the economy, or assessments of buying conditions," Richard Curtin, chief economist at the Surveys of Consumers, said.

Americans' soured economic sentiment comes despite an otherwise healthy recovery. The labor market is rebounding three times faster than it did after the financial crisis. Gross domestic product surpassed its pre-crisis high in 2021 and is still estimated to land above trend through 2022. And even as prices leap higher, Americans' spending at stores and restuarants hit a new record high in February.

Still, inflation has overpowered those rosier trends and left Americans feeling dismal. Price growth was the biggest driver of rising pessimism through March, Curtin said, adding that respondents predicted an inflation rate of 5.4% over the next year, the highest since 1981. Those expectations could worsen the inflation problem further, as fear of soaring prices can serve as a sort of self-fulfilling prophecy and prompt companies to charge more.

Keeping those expectations anchored will be key for policymakers if they aim to keep inflation from staying permanently high, Curtin said.

"Confidence that economic policies will resolve the problem is essential," he said. "Unfortunately, half of all consumers unfavorably assessed current policies, more than three times the 16% who rated them favorably."