June final results from the University of Michigan Survey of Consumers show that overall consumer sentiment has plunged below a new record (see first chart). Composite consumer sentiment fell to 50.0 in June, down from 58.4 in May, with a loss of 8.4 points or 14.4 percent. The index is consistent with the previous recession.
Both component indices post sharp declines. The current economic situation index fell to 63.8 from 53.3 in May (see first chart). This is a 9.5-point or 15.0 percent decline for the month, keeping the index at a record low.
The second sub-index – Consumer Expectations, one of the main indicators of AIER – lost 7.7 points or 13.9 percent per month, falling to 47.5 (see first chart). The index is at its lowest level since May 1980.
The report said, “Consumers have fallen sharply across income, age, education, geographical area, political affiliation, stockholding and home ownership. About 79% of consumers expect bad times in the coming year for business conditions, the highest since 2009. “
One-year inflation expectations were unchanged at 5.3 percent in June, just below the 5.4 percent level in March and April 2022. One-year expectations have risen several times over 3.5 percent since 2005 only to fall behind (see second chart).
Expectations for five-year inflation stood at 3.1 percent in June. The results range from 2.2 percent to 3.5 percent within the 25-year range (see second chart).
According to the report, “Inflation has become a major concern for consumers; 47% of consumers blame inflation for lowering their standard of living, shy of just one point from the highest ever reached during the Great Depression. Since the initial reading, the Federal Reserve has raised interest rates by 75 basis points, exceeding the 50 basis points previously telegraphed. “
The report added, “Consumers have also expressed the highest level of uncertainty over long-term inflation since 1991, which has continued to rise sharply since 2021.”
The immersion in consumer sentiment reflects a combination of events, where inflation leads the pack. Constantly high price increases affect consumer and business decision making and distort economic activity. Overall, economic risks remain high due to the impact of inflation, an accelerated Fed tightening cycle, and the obstacles associated with the Russian aggression in Ukraine and the periodic lockdown in China. With the mid-June elections approaching, the ramp-up of negative political advertising could affect consumer sentiment in the coming months. The overall economic outlook remains highly uncertain.
Robert Hughes
Robert Hughes joined AIER in 2013 for over 25 years researching economic and financial markets on Wall Street. Bob was previously head of Brown Brothers Harriman’s Global Equity Strategy, where he developed an equity investment strategy that combines top-down macro analysis with bottom-up fundamentals.
Prior to BBH, Bob was a senior equity strategist at State Street Global Markets, a senior economic strategist at Prudential Equity Group, and a senior economist at Citicorp Investment Services and a financial markets analyst. Bob holds an MA in Economics from Fordham University and a BS in Business from Lehigh University.