The mood among US consumers darkened considerably in early May, this week’s only top-tier US macro release suggested.
University of Michigan sentiment printed an abysmal 67.4 in the preliminary read for this month, down 10 points, 13% and a grievous miss to expectations (consensus was 76.2).
The percentage decline was the largest since June of 2022, when the Fed initiated upsized rate hikes motivated, in part, by an overshoot on medium-term inflation expectations in the Michigan release.
Note that June of 2022 also marked a record low for the Michigan headline. Both the current conditions and expectations series fell by 10ppt this month.
“This decline is statistically significant and brings sentiment to its lowest reading in about six months,” survey director Joanne Hsu said Friday, in the color accompanying the release.
There was precious little in the way of nuance. The mood deteriorated across age, income and education cohorts. Americans exhibited “broad consensus,” as Hsu put it, adding that “while consumers had been reserving judgment for the past few months, they now perceive negative developments on a number of dimensions.”
One of those “dimensions” is inflation. Year-ahead expectations jumped to 3.5% from 3.2% in April. It was the second straight 0.3ppt increase.
Longer-term expectations rose too, drifting back to the top of the post-pandemic range, at 3.1%.
Friday’s release came on the heels of a lackluster read on Conference Board confidence.
I don’t see much use in pretending this is anything other than bad news. You could argue, I suppose, that the deterioration in consumer moods increases the odds of rate cuts, particularly given softer labor market data and contraction-territory ISM prints, but if the proximate cause of consumer angst is inflation, then arguing for rate cuts based on the dour mood feels a bit circular.
Hsu summed it up: “[Consumers] expressed worries that inflation, unemployment and interest rates may all be moving in an unfavorable direction in the year ahead.”
Donald Trump will be pleased. All he has to do is stay out of prison.
At this point it should be obvious to anyone who listens to people who are not rich that housing costs are crushing the middle class. As a not-rich, that is the main thing making me feel poor. Gas prices, food prices, crap prices, whatever, I’ll just stop going to restaurants. But my family and I are moving (for a good opportunity, despite the regional cost of living difference) and our housing costs are literally doubling. That makes me feel poor. Who’s still confused by this?
What MIGHT bring down housing costs? Probably not higher for longer. Probably not high borrowing costs for construction. Probably not golden handcuffs. I know you already made this point but are they so constrained by optics that lowering rates half a point is untenable?
The Fed’s tools are blunt and their effects sometimes difficult to predict.
What might a 50 bp cut ignite in non-housing sectors and in non-housing inflation?
How much of that 50 bp would transfer to housing-related borrowing rates? A lot of factors in the transmission from Fed Funds to 10 year Treasury to mortgage loans. E.g. higher expected future growth or inflation could push 10 yr up even as Fed Funds are cut (curve steepening).
And, assuming it all transferred, how much would 50 bp lower borrowing rates result in lower housing prices? I can see a scenario where lower mortgage rates drives higher demand while not creating more supply.
If there were a way to selectively cut rates on only housing-related lending . . . well, there is, the Fed could resume QE for MBS. Whether that’s a good idea, I don’t know.
No, that is not a good idea. 🙂
Peasants, my housing costs quadrupled
Quintupled actually