US consumer sentiment collapsed to a record low in early June, the preliminary read on University of Michigan sentiment, released on Friday, showed.
It was a dubious encore to a very disconcerting inflation report.
The headline sentiment gauge tumbled to 50.2, an egregious miss versus consensus (58.1) and nowhere near the most pessimistic guess from five-dozen economists. The range of estimates was 55.5 to 62.6.
June’s 14% plunge came on the heels of a 10% drop the prior month (figure above). Sentiment has loitered near a decade low for months. Now, it’s below the trough witnessed during the 1980 recession.
The expectations gauge tumbled more than 15% to 46.8. Every underlying component fell. Ominously, the largest decline came on a gauge of year-ahead business conditions, which plunged 24% from May.
Only once since 1981 have more consumers cited inflation while explaining their negative outlook. 46% of respondents pointed to price pressures, up eight percentage points from the prior month.
You could argue that May’s disastrous CPI report suggests perceptions of inflation will be even worse when the final read on the Michigan survey is released later this month. Or you could argue that consumers felt the May CPI report when it was unfolding last month, and took the opportunity to express their opinion on the matter when queried.
Half of all consumers spontaneously mentioned gas prices during their interviews. That’s hardly surprising. Gas prices are at record highs (figure below).
Although there’s some evidence of demand destruction across the US, the threshold is apparently $6, which means the national average would need to go materially higher before demand falls across the board. That’s especially true with summer driving season upon us, and Americans eager to make up for “experiences” lost to the pandemic.
Perhaps the most worrying data point from the Michigan survey was the least flashy. Consumer inflation expectations for the next five to 10 years rose to 3.3% (figure below).
It was the highest reading since 2008.
“On net, [this is] a dismal look at household sentiment as the impact of inflation and higher gas prices is dragging on confidence at the individual level,” BMO’s Ian Lyngen remarked.
Earlier this week, Janet Yellen told US lawmakers that in her judgment, there’s “no way in which inflation is a decade-long matter.”
It was 1999, I remember being 16, just got my driver’s license, gas was $.99 and I made $5.35/hr working at a dilapidated convenience store. Glory days.
1996, shift leader at Carl’s Jr. making 5.25/hr and a store clerk at a video store making 5.00/hr, two full time jobs and I couldn’t afford to live on my own. My parents, just beginning to become radicalized by the far right, were bitching about bread and milk prices.
Got liberals in ascendency? “Make the economy bleed”…. Works every time.
Haha, I was still making $5.15 an hour as a convenience store clerk in 2003, but now the federal minimum wage is up to a whopping $7.25 an hour and hasn’t changed for 13 years! Interestingly, less than 2% of workers make minimum wage (or less) as of 2020. I’m guessing that number has dropped with today’s labor market which effectively renders the federal minimum wage completely useless. Time for UBI?
Very generous UBI is currently available if you are a defense contractor, big pharma, insurance provider, banker, oil company, corporate farmer or rancher. Or if you have political connections, a good grant writer and a dumb idea (like pumping CO2 into the ground); UBI is readily available through grants. UBI for people sleeping in cars and under bridges – no way. That would be socialism and we all know that is bad, even if we can’t explain why.
My first job was in 1960 and I earned $50/week (40 hours in a factory). Gas was $0.25, and bread was 0.25 a loaf. McDonalds was a bargain. The burger was $0.15, the fries $0.12 (only smalls then) and a Coke was a dime. Could eat for 37 cents (3 cents more if you wanted a cheese burger). Now those were really the days.
… and conservative politicians told us how terrible and dark it was. Then we had “Morning In America”; manufacturing emigrating to China, the death of unions, the fictionalization of the economy and a new understanding that greed is good. Don’t worry, the job creators new found wealth will trickle down – eventually. And you will get your “pie in the sky” as the song goes. Let’s all sing along now:
You will eat bye and bye
In that glorious land above the sky
Work and pray live on hay
You’ll get pie in the sky when you die