The University of Michigan’s consumer sentiment index cratered to 50.2 from 58.4 in an early June reading, according to a Friday report. That reflects the lowest level since regular monthly data collection began in the late 1970s. The print also landed well below the median forecast of 58.1 from economists surveyed by Bloomberg.
The decline was powered by worsening sentiments across the board. The university’s index for current economic conditions deteriorated to 55.4 from 63.3, while the measure for consumer expectations sank to 46.8 from 55.2. Not only have Americans had it with today’s economy, they aren’t very hopeful that things will get better.
Forty-six percent of surveyed consumers linked their pessimism to elevated inflation, Joanne Hsu, director of the university’s Surveys of Consumers, said in the report. That’s up from 38% in May and the second-largest share since 1981, when inflation last trended so high.
That share will likely be larger in the final June reading. Data out earlier Friday morning showed inflation unexpectedly speeding up in May to a year-over-year pace of 8.6%. The uptick was largely powered by skyrocketing energy prices, with the cost of gasoline and fuel oil both surging last month. The report countered hopes that inflation had peaked in March and signaled it will likely be harder than initially expected to slow price growth.
Americans aren’t optimistic that gas prices will provide relief. Half of surveyed consumers mentioned pricier gas during the university’s interviews, up from 30% in May and just 13% in June 2021, Hsu said. Respondents also expect pump prices to rise about 25 cents per gallon over the next year, doubling the May outlook and the second-largest expected price hike since 2015.
The Friday report paints a bleak picture for the future of the economic recovery. Consumer spending counts for about 70% of economic activity, making it a crucial ingredient for bringing the US back to pre-pandemic health. Yet continuously rising prices risk curbing the spending spree.
The Federal Reserve is also raising interest rates at the fastest pace in 22 years. As borrowing gets more expensive, shoppers tend to slow their spending and shift more toward saving their cash.
“While consumer spending has remained robust so far, the broad deterioration of sentiment may lead them to cut back on spending and thereby slow down economic growth,” Hsu said.
source: Business Insider India