White House Has Serious Inflation PR Problem, Survey Shows

Consumers are now very concerned about inflation.

That might seem like a flippant or otherwise superfluous statement after this week, but sentiment is apparently deteriorating at a somewhat alarming rate.

The initial read on the University of Michigan gauge for November was 66.8 (figure below), a mile below the 72.5 consensus expected.

Do note that the headline index was already sitting close to a decade nadir after plunging in August as the Delta wave washed over the country. Now, the index is lower than it was during the darkest days of the original COVID panic.

Survey chief economist Richard Curtin was unequivocal in terms of assigning blame.

“Consumer sentiment fell in early November to its lowest level in a decade due to an escalating inflation rate and the growing belief among consumers that no effective policies have yet been developed to reduce the damage from surging inflation,” Curtin wrote Friday.

25% of consumers cited lower living standards due to inflation this month. Needless to say, lower-income cohorts were especially worried about the impact of rising prices.

Although many respondents reported gains in nominal incomes, 50% of households said they expected real incomes to fall next year.

“The proportion of households who expected to be worse off financially stood at 24% in November,” Curtin remarked, adding that “the last time a higher figure was recorded was in June 2008.”

November’s reading was among the worst in history (figure above).

“US consumer confidence is being threatened by the rising cost of living,” ING remarked. “Thankfully the relationship between spending and sentiment has been weak for a number of years and the strong underlying economic position means spending will continue to grow.”

Speaking of spending, consumers once again reported rising prices for homes, vehicles and durables more frequently than any other time in nearly 60 years.

Both the current conditions and the expectations gauges fell markedly. The stocks are fine, though (figure below).

Curtin delivered a lengthy assessment of how partisanship affects not only consumer moods, but how consumers are inclined to assess incoming information. “Positive moods promote more casual and less detailed information processing, and negative moods promote more formal and deliberate information processing, especially of potentially negative developments,” he wrote, on the way to noting that “the stylized difference is that one side favors maximizing economic growth and efficiency, the other side on maximizing distributional equity and fairness.”

Inflation expectations for the year ahead rose to 4.9%. Five- to 10-year expectations were unchanged at 2.9%.

Ultimately, this doesn’t bode particularly well for The White House or, by extension, Democrats and the (Republican-controlled) Fed.

Democrats and Democrat-leaning voters will be inclined to give Joe Biden the benefit of the doubt. And you could argue that higher prices are a desirable outcome to the extent accompanying wage gains will be “sticky” while higher consumer prices won’t last, leading to better financial outcomes for households over time. But it always comes back to “How long?” What is “over time”? What is “transitory”?

As Curtin put it Friday, “the description that inflation would be ‘transient’ has the undertone that consumers could ‘grin and bear it’ [but] the pandemic caused economic dislocation unlike any prior recession, and has been intertwined with partisan interpretations of economic developments.”

In other words, it’s just not that simple. Where “it” can be anything you want it to be.