There wasn’t much to be gleaned about America’s still simmering bank crisis from the preliminary read on University of Michigan sentiment for March.
Survey director Joanne Hsu knew just what markets were curious about, but at least for now, she couldn’t offer much in the way of answers. “85% of our interviews for this preliminary release had been completed” by the time Silicon Valley Bank failed, Hsu said Friday.
So, we’ll have to wait for the final read on March sentiment, or perhaps for the April vintage, to get a sense of the psychological distress brought on by SVB’s collapse. Even before Americans witnessed the second-largest bank failure in the nation’s history, sentiment was in retreat. At 63.4, the headline index dropped from February.
Both the current conditions and expectations gauges fell. The decline on the main index was the first since November.
Sentiment declines were observed among “lower-income, less-educated and younger consumers, as well as consumers with the top tercile of stock holdings,” the release said. So, among the poor, the poorly-educated, the young and those with large equity portfolios who, you’re reminded, bolstered sentiment in early February, just prior to the onset of a cross-asset malaise tied to a dramatic hawkish repricing across the US rates complex.
Inflation remained a problem for consumers early this month. The uniform retreat in index components was attributed to “persistently high prices” which served to “creat[e] downward momentum leading into the financial turmoil that began last week.”
The silver lining was the lowest reading on year-ahead inflation expectations since April of 2021.
At 3.8%, the one-year outlook is markedly more benign than it was during the worst of last year’s CPI surge, albeit still a full percentage point (at least) above levels witnessed in the years just prior to the pandemic.
Longer-term inflation expectations fell slightly to 2.8%. That was notable. It was only the second time in 20 months that the five-year gauge dropped below the 2.9-3.1% range that came to typify the post-COVID regime.
Stating the obvious Friday, Hsu wrote that, “With ongoing turbulence in the financial sector and uncertainty over the Fed’s possible policy response, inflation expectations are likely to be volatile in the months ahead.”
It’s not just low income folks who are panicked about this mini crisis. Yesterday I got a call from a very smart individual I worked with for his entire career as the executive director of a major behavioral health agency. He is the closest thing I have to a real personal hero, a blind individual leading his staff of over 100 to help people trapped by addiction to free themselves. He called me for reassurance that the apocalypse is not upon us and to gain an understanding of how the system works. What I realized at that moment, and what I have gleaned from reading chatboards, posted comments and other sources, is that even most “smart” people don’t actually understand how the major institutions of our economy actually function. They really don’t seem to get banks. Many characterize depositors as greedy “investors” who should all be punished by losing all their money so they wouldn’t get anything from honest taxpayers. It won’t be China or Russia or climate change that brings humanity down, it will be ignorance, the fastest growing problem we jointly face.