Consumer sentiment plunges to record lows in anticipation of inflation …

Early June results from the University of Michigan Survey of Consumers show that overall consumer sentiment plunged again in early June (see first chart). Composite consumer sentiment fell to 50.2 in early June, down from 8.8 points in May to 8.2 points, or 14.0 percent. The index is at record lows and is consistent with previous recessions.

Both component indices post sharp declines. The current-economic-index fell to 63.3 from 55.4 in May (see first chart). This is a 7.9-point or 12.5 percent decline for the month and leaves the index at a record low.

The second sub-index – Consumer Expectations, one of the main indicators of AIER – lost 8.4 points or 15.2 percent per month, to 46.8 (see first chart). The index is at its lowest level since May 1980.

According to the report, “All components of the sentiment index fell this month, with the biggest decline in the year-over-year outlook on business conditions, down 24% from May.” The report added, “Consumer appraisals about their current financial situation are at their lowest level since 2013, compared to a year ago, with 36% of consumers blaming their negative appraisals for inflation.” Furthermore, “Consumers’ assessment of their personal financial condition has deteriorated by almost 20%. 46 per cent of consumers blamed their negative feedback on inflation, which rose to 38% in May; The stock has only surpassed the Great Recession since 1981. “

One-year inflation expectations rose to 5.4 percent in early June, recovered to March and April 2022 levels and peaked at the highest level since November 1981. One-year expectations have risen above 3.5 percent several times since 2005 only to fall behind (see second chart).

Five-year inflation expectations jumped to 3.3 percent in early June. These results are the highest since June 2008 but range from 2.2 percent to 3.5 percent over a 25-year period (see second chart).

The report said, “Overall, gas prices were heavy on consumers, which was not surprising given the 65 per cent increase in national gas prices from last month (AAA). Half of all consumers spontaneously mentioned gas in their interviews, compared to 30% in May and only 13% a year ago.

The report added, “Consumers expect gas prices to rise by an average of 25 cents next year, more than double the May reading and the second highest since 2015. In addition, most consumers spontaneously cited supply shortages for the ninth. Continuous months. “

Immersion packs in consumer attitudes reflect a combination of events with leading inflation. Constantly high price increases affect consumer and business decision making and distort economic activity. Overall, economic risks remain high due to the effects of inflation, the beginning of the Fed tightening cycle, the Russian aggression in Ukraine, and renewed lockdowns in China. With the mid-June elections approaching, the ramp-up of negative political advertising could also affect consumer sentiment in the coming months. The overall economic outlook remains highly uncertain.

Robert Hughes

Bob Hughes

Robert Hughes joined AIER in 2013 for over 25 years researching economic and financial markets on Wall Street. Bob previously headed 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.

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