Consumer Sentiment Plunged to a Record Low in June
The final June results from the University of Michigan Surveys of Consumers show overall consumer sentiment plunged to a new record low (see first chart). The composite consumer sentiment decreased to 50.0 in June, down from 58.4 in May, a loss of 8.4 points or 14.4 percent. The index is consistent with prior recessions.
Both component indexes posted sharp declines. The current-economic-conditions index fell to 53.8 from 63.3 in May (see first chart). That is a 9.5-point or 15.0 percent decrease for the month, leaving the index at a record low.
The second sub-index — that of consumer expectations, one of the AIER leading indicators — lost 7.7 points or 13.9 percent for the month, dropping to 47.5 (see first chart). The index is at its lowest level since May 1980.
According to the report, “Consumers across income, age, education, geographic region, political affiliation, stockholding and homeownership status all posted large declines. About 79% of consumers expected bad times in the year ahead for business conditions, the highest since 2009.”
The one-year inflation expectations was unchanged at 5.3 percent in June, just below the March and April 2022 level of 5.4 percent. The one-year expectations has spiked above 3.5 percent several times since 2005 only to fall back (see second chart).
The five-year inflation expectations ticked up to 3.1 percent in June. That result remains within the 25-year range of 2.2 percent to 3.5 percent (see second chart).
According to the report, “Inflation continued to be of paramount concern to consumers; 47% of consumers blamed inflation for eroding their living standards, just one point shy of the all-time high last reached during the Great Recession. Since the preliminary reading, the Federal Reserve raised interest rates by 75 basis points, exceeding the 50 basis point hike that had been previously telegraphed.”
The report adds, “Consumers also expressed the highest level of uncertainty over long-run inflation since 1991, continuing a sharp increase that began in 2021.”
The plunge in consumer attitudes reflects a confluence of events, with inflation leading the pack. Persistently elevated price increases affect consumer and business decision-making and distort economic activity. Overall, economic risks remain elevated due to the impact of inflation, an intensifying Fed tightening cycle, and disruptions associated with the Russian invasion of Ukraine and periodic lockdowns in China. The ramping up of negative political ads as the midterm elections approach June may also weigh on consumer sentiment in the coming months. The overall economic outlook remains highly uncertain.
Robert Hughes
Robert Hughes joined AIER in 2013 following more than 25 years in economic and financial markets research on Wall Street. Bob was formerly the head of Global Equity Strategy for Brown Brothers Harriman, where he developed equity investment strategy combining top-down macro analysis with bottom-up fundamentals. Prior to BBH, Bob was a Senior Equity Strategist for State Street Global Markets, Senior Economic Strategist with Prudential Equity Group and Senior Economist and Financial Markets Analyst for Citicorp Investment Services. Bob has a MA in economics from Fordham University and a BS in business from Lehigh University.
