Chart of the day: Consumer sentiment drops to record low

REAL ECONOMY BLOG | June 10, 2022

Authored by RSM US LLP

Consumer sentiment plunged in June as energy and gasoline prices spiked. The headline consumer sentiment index from the University of Michigan dropped to 50.2, the lowest on record.

Consumers became more concerned about inflation as both short- and long-term inflation expectations rose, according to a monthly survey released by the University of Michigan reported on Friday.

Consumer sentiment

With inflation’s peak remaining elusive, we expect consumer sentiment to stay underwater for several months.

Higher inflation expectations are particularly concerning for the Federal Reserve, which has made clear that keeping inflation expectations well-anchored is its top priority. Together with the upside surprise from the inflation report on Friday, any talk about a September pause in rate hikes should be tempered.

Inflation expectations

Views on the current conditions of the economy and future expectations also decreased significantly on the month.

The decline was expected as the index is well-known for its correlation with gasoline prices. The gas price subindex within the report shows a sharp increase from 24.3 in April to 39.5 in May. This mirrors the recent increase in oil and gasoline prices.

What is more concerning is the uptick in inflation expectations. The 12-month inflation expectation inched up to 5.4% from 5.3% previously, while the five- to 10-year expectation increased to 3.3% from 3.0% a month ago—the highest since 2008, when oil and gasoline prices reached an all-time high.

Consumer sentiment house buying

Elevated inflation and rising interest rates slow down consumers’ buying intentions for homes, vehicles and major household items.

The subindex that asks consumers if it is a good time to buy a house dropped for the fourth month in a row on a three-month moving average as mortgage rates increased and housing prices continued to climb. This implies a further drop in housing sales in May and June.

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This article was written by Tuan Nguyen and originally appeared on 2022-06-10.
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