Consumer sentiment disappointed expectations in Friday’s only notable economic data release. This isn’t surprising considering the still exigent circumstances on Main Street.
The preliminary read on University of Michigan’s gauge for February was 76.2, down from 79 in January and a pretty sizable miss to consensus, which was looking for 80.9.
Indeed, to the extent you take estimates seriously, the range from 52 economists was 78 to 83, so the actual headline print was worse than even the most pessimistic guess.
The figure (above) is apples to oranges almost by definition. But spurious or not, the juxtaposition is pretty stark.
It won’t surprise you to learn that lower-income Americans are worried.
“The entire loss” of momentum in February’s initial estimate was “concentrated in the Expectation Index and among households with incomes below $75,000,” Richard Curtin, the survey’s chief economist said, adding that,
Households with incomes in the bottom third reported significant setbacks in their current finances, with fewer of these households mentioning recent income gains than anytime since 2014. When asked to assess their current financial position, the deep divisions become apparent: Among those with incomes in the bottom third, just 23% reported improved finances, the lowest since 2014; in contrast, among those with incomes in the top third, 54% reported their finances had improved. Mentions of income gains fell to just 17% among those in the bottom third, compared with 44% in the top income third.
That would appear to speak to the urgency of providing more relief to lower- and middle-income families, assuming anyone needed more evidence to make the case.
I suppose the cynical among you might argue that the apparent deterioration of lower-income individuals’ finances simply reflects the waning of previous stimulus, and is therefore artificial, in some sense. But that’s a pretty cruel way to think about things.
Disconcertingly, expectations fell despite efforts on the part of Democrats to make it clear that additional virus relief is imminent.
“Presumably a new round of stimulus payments will reduce financial hardships among those with the lowest incomes,” Curtin went on to say, before calling it “surprising… that consumers, despite the expected passage of a massive stimulus bill, viewed prospects for the national economy less favorably in early February than last month.”
This is crucial. For stimulus to “work” in a consumption-driven economy, those with the highest marginal propensity to consume have to be a semblance of confident in the outlook. Otherwise, they’ll just save their stimulus checks.
This becomes self-referential. If the labor market depends on the services sector coming back, which in turn depends on vaccine rollout, and consumer sentiment depends on labor market gains for services sector workers, you end up staring at a kind of vexing Venn diagram.
But hey, at least the stocks are fine (figure below).