Friday brought more bad news for President Joe Biden as consumer sentiment sank to record levels just hours after the release of a worse-than-expected inflation report.
The University of Michigan Consumer Sentiment Index plunged to 50.2 in June, down from 58.4 in May, according to preliminary numbers released Friday. The drop represents a weighty 14% decline from last month and about a 41.3% dip from a year ago. The number was well below consensus estimates of just over 58.
Joanne Hsu, director of the survey, said in a Friday statement that the dismal numbers are comparable to the floor reached in the middle of the early 1980s recession.
“All components of the sentiment index fell this month, with the steepest decline in the year-ahead outlook in business conditions, down 24% from May. Consumers’ assessments of their personal financial situation worsened about 20%,” Hsu said.
The news is bruising for Biden, who is facing intense scrutiny by Republicans for his handling of the economy. Biden’s approval ratings have dipped considerably, with much of that decline being blamed on high inflation.
The Friday report found 46% of consumers attributed their negative sentiment to inflation, up from 38% the month before. That high proportion has only been breached in the survey once since 1981, during the worst of the financial crisis more than a decade ago.
Inflation increased in pace to 8.6% for the 12 months ending in May, according to new consumer price index numbers, which were released by the Bureau of Labor Statistics on Friday. The 8.6% figure was worse than forecasters had expected and shows that the economy still has a long way to go before prices fall back within the target range.
The Federal Reserve announced in March that it would raise its interest rate target by a quarter of a percentage point in an effort to rein in the higher prices and last month hiked its interest rate target by half a percentage point. The central bank typically raises rates by just a quarter of a percentage point, so the move shows how dire the situation is for the economy.
Further causing political pain for Biden and Democrats is the price of gas. The war in Ukraine has pushed energy prices through the roof because Russia is one of the world’s largest producers of oil and natural gas.
“Overall, gas prices weighed heavily on consumers, which was no surprise given the 65 cent increase in national gas prices from last month (AAA),” said Hsu. “Half of all consumers spontaneously mentioned gas during their interviews, compared with 30% in May and only 13% a year ago.”
As of the afternoon, the Dow Jones Industrial Average had lost more than 750 points, or 2.3%. The tech-heavy Nasdaq plummeted by about 3.25%, and the S&P 500 was off by 2.6%.
The S&P 500 was flirting with a bear market on Friday, a term that means an index has dropped by at least 20% from a recent high. The blue-chip index has now fallen over 18% since the start of the year, its most recent peak.
The most recent bear market was at the start of the coronavirus pandemic. Before the pandemic, the last time the economy experienced a bear market was during the financial crisis. That bear market lasted for a punishing 517 days.
source: Washington Examiner
