Sentiment index shows a decline as inflation, rates fuel concern
When 2024 began there was expectation that the worst for the U.S. economy may be over, with inflation likely to fall to within the Fed’s target range and multiple interest rate cuts to come.
A barometer of consumer sentiment has shown that sense of optimism has remained buoyant for several months, but it declined this month having been essentially unchanged for the previous three months.
Concerns among American consumers are led by worries that inflation, unemployment and interest rates may all be moving in an unfavorable direction in the year ahead.
A 13% fall in the University of Michigan’s consumer sentiment index is “statistically significant” according to survey of consumers director Joanne Hsu, who noted that the reading is at its lowest in six months.
The preliminary data shows that three components of the index have fallen in unison with the overall index of consumer sentiment reading 67.4; current economic conditions at 68.8; and expectations at 66.5. However, despite the monthly declines, the three readings are higher year-over-year by 14%, 6%, and 21% respectively.
“This month’s trend in sentiment is characterized by a broad consensus across consumers, with decreases across age, income, and education groups,” added Hsu. “Consumers in western states exhibited a particularly steep drop. While consumers had been reserving judgment for the past few months, they now perceive negative developments on a number of dimensions.”
Labour market
A separate sentiment index from the Conference Board at the end of April reported declining confidence over several recent months.
"Confidence retreated further in April, reaching its lowest level since July 2022 as consumers became less positive about the current labor market situation, and more concerned about future business conditions, job availability, and income," said Dana M. Peterson, chief economist at The Conference Board. "Despite April's dip in the overall index, since mid-2022, optimism about the present situation continues to more than offset concerns about the future.”
Prices, especially for food and gasoline, together with politics and global conflicts have been weighing on confidence in recent months, Peterson explained.
