US Consumer Sentiment Hits Lowest Point in Over a Decade

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The U.S. consumer sentiment, measured by the University of Michigan, has fallen to its lowest level in almost 11 years as of early March 2022, while the Treasury secretary predicts persistent high inflation for the year ahead.

Preliminary results for the current month show the consumer sentiment index having a value of 59.7, which is a 4.9 percent month-on-month decline when compared to 62.8 in February, and a decline of 29.7 percent when compared to 84.9 in March 2021.

The survey attributed the decline in consumer sentiment to falling inflation-adjusted incomes, driven by a hike in fuel prices exacerbated due to the Russia-Ukraine conflict. The expected inflation rate for the year ahead reached its highest level since 1981 while expected gas prices saw their biggest monthly upsurge in multiple decades.

The University of Michigan report also presented the preliminary March result for the Current Economic Conditions Index at 67.8, down 27.1 percent when compared to a year back. The index of consumer expectations was at 54.4, a decline of 31.7 percent from March last year.

Inflation and the Russia-Ukraine situation is the “greatest source of uncertainty,” according to the survey . When questioned about the present economic outlook, “24 percent of all respondents spontaneously mentioned the Ukraine invasion.”

“The impact of this recognition was associated with a drop of 13.2 Index points in the Index of Consumer Expectations across all households. The difference was much larger for those who held higher inflation expectations: the difference was 33.5 Index-points on the Expectations Index for those who expected under 5 percent compared with over 5 percent.”

The relationship between consumer sentiment and spending is “loose,” especially in the short term, according to Scott Hoyt, a senior economist at Moody’s Analytics. According to Hoyt, there were more important factors like real disposable income along with other determinants of household finances and budgets.

However, economist Peter Schiff took a gloomy view of the University of Michigan data. “The Mar. Univ. of Mich. Sentiment Index ‘unexpectedly’ plunged to 59.7, its lowest level since 2011. Worse one-year #inflation expectations hit 5.4 percent, the highest since Dec. 1981. Imagine how much gloomier consumers would be if they realized inflation will actually be much higher!” he said in a March 11 tweet.

U.S. inflation rose by 7.9 percent in February compared to a year back, the fastest such pace in four decades. Treasury Secretary Janet Yellen, who had earlier predicted inflation to ease down during the second half of the year, now foresees another year of “uncomfortably high” 12-month inflation numbers.

Though income growth is strong, it has not kept pace with rising inflation, notes a report (pdf) published by Moody’s on March 10. Inflation-adjusted income has grown for almost every month but real income has been falling since the middle of 2021. This decline has intensified over the past months as inflation also rose.

“Current trends suggest the gap between real and nominal income growth will widen further for at least another few months, and potentially longer,” the report stated.

Naveen Athrappully

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Naveen Athrappully is a news reporter covering business and world events at The Epoch Times.





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