Consumer Sentiment Moves Up

The University of Michigan released the latest results of its ongoing surveys of consumers. The numbers are up, which is welcome news. But not by that much given where they have been of late.

“Consumer sentiment moved up very slightly this month to about 5 index points above the all-time low reached in June,” the report said. “All components of the expectations index improved this month, particularly among low- and middle-income consumers for whom inflation is particularly salient.”

And there is the crux. An improvement, but things had hit an historical low for the index, which was founded in 1946. So, Korean and Vietnam wars; the disastrous 1970s after the removal of the gold standard and the arrival of inflation, short-term wage and price freezes, and Watergate; double-digit inflation and mortgages in the 1980s as well as the savings and loan crisis; two Gulf wars; 9/11; the Great Recession; and the pandemic crash, among other things here and there didn’t see as big a loss of consumer confidence.

Consumer spending is nearly 70% of GDP and, directly or indirectly, keeps the commercial real estate industry going.

“Surprisingly, consumers’ view on current conditions declined despite falling gas prices and an improved inflationary environment,” wrote LPL Financial chief economist Jeffrey Roach in a note. “However, consumers have a better view about the future: expectations rose the highest since May as inflation expectations within the next 12 months fell for the second consecutive month.”

The question is how much better.

“With continued declines in energy prices, the median expected year-ahead inflation rate fell to 5.0%, its lowest reading since February but still well above the 4.6% reading from a year ago,” the survey noted. “At 3.0%, median long run inflation expectations remained within the 2.9-3.1% range seen over the past year. Uncertainty over long run inflation receded a bit, with the interquartile range in expectations falling from 4.7 last month to 3.8 this month, remaining above the 3.3 range seen last August. Still, the share of consumers blaming inflation for eroding their living standards remained near 48%.”

Also, high-income consumers “who generate a disproportionate share of spending, registered large declines in both their current personal finances as well as buying conditions for durables.”

As Roach also wrote, “Consumers are nervous about spending on big ticket items and are increasingly convinced that now is a bad time to buy a vehicle or a major household item. Consumer spending will likely slow in the near term. One silver lining is that inflation may ease faster than anticipated.”

But in the meantime, retailers (especially those handling larger-ticket items) may see some trouble in the near future.

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