US: UoM Consumer Sentiment Index Falls In February

According to the University of Michigan’s preliminary February Consumer survey, the Consumer Sentiment Index fell to 61.7 in February, well below expectations for a slight rise to 67.5 from 67.2 in January. That marked the lowest such reading since October 2011.

The Current Conditions Index fell to 68.5 from 72.0 in January versus forecasts for a small rise to 73.0, its lowest reading since August 2011. The Consumer Expectations Index fell to 57.4 from 64.1 in January, it’s lowest such reading since November 2011. The one-year Inflation Expectations Index rose to its highest since July 2008 at 5.0% from 4.9% in January.

As for markets’ reaction, poor consumer sentiment data has failed to shift the dial for the US dollar, with the DXY continuing to trade sideways in the 95.80s, where it trades broadly flat on the session.

Sentiment continued its downward descent, reaching its worst level in a decade, falling a stunning 8.2% from last month and 19.7% from last February.

The recent declines have been driven by weakening personal financial prospects, largely due to rising inflation, less confidence in the government’s economic policies, and the least favorable long term economic outlook in a decade.

The entire February decline was among households with incomes of $100,000 or more; their Sentiment Index fell by 16.1% from last month, and 27.5% from last year. The impact of higher inflation on personal finances was spontaneously cited by one-third of all consumers, with nearly half of all consumers expecting declines in their inflation adjusted incomes during the year ahead. In addition, fewer households cited rising net household wealth since the pandemic low in May 2020, largely due to the falling likelihood of stock price increases in 2022. https://ec4c4357a916173c7af60aa7d9477b0a.safeframe.googlesyndication.com/safeframe/1-0-38/html/container.html

The recent declines have meant that the Sentiment Index now signals the onset of a sustained downturn in consumer spending (see the chart). The depth of the slump, however, is subject to several caveats that have not been present in prior downturns: the impact of unspent stimulus funds, the partisan distortion of expectations, and the pandemic’s disruption of spending and work patterns.

Households have amassed substantial savings and reserve funds from the stimmies as well as due to more limited consumption choices, especially services. There may be a lessened need for additional precautionary savings and a greater desire to engage in discretionary spending.