Preliminary April results from the University of Michigan Survey of Consumers show that overall consumer sentiment bounced back in early April after hitting a multi-year low in March (see top chart). Profits are almost entirely due to a jump in consumer expectations for the future. Composite consumer sentiment rose to 65.7 in early April, up 6.3 points or 10.6 percent from 59.4 in March. The index is still 35.3 points below its February 2020 high.
The current-economic-situation index rose to 68.1 from 67.2 in March (see the middle of the first chart). This is a 0.9-point or 1.3 percent increase for the month but still leaves the index with a 46.7-point drop from February 2020.
The second sub-index – Consumer Expectations, one of the main indicators of AIER – jumped 9.8 points, or 18.0 percent, to 64.1 (see chart below). The index is still below 28.0 points from February 2020.
All three indicators are below the four seen in the last six recessions (see first chart).
According to the report, “almost all gains were in the expectation index, which posted a monthly gain of 18.0%, including a 29.4% jump in year-over-year outlook for the economy and a 17.2% jump in personal financial expectations.” The market has strengthened wage expectations among consumers under the age of 45 to 5.3% সবচেয়ে the biggest expected gain in more than three decades since April 1990. Consumers are still hoping that the national unemployment rate will drop an inch, working to improve consumer attitudes toward the national economy. “
One-year inflation expectations remained unchanged at 5.4 percent in early April, the highest level since November 1981. One-year expectations have risen several times over 3.5 percent since 2005 only to fall behind (see second chart). Five-year inflation expectations were unchanged at 3.0 percent in early April. That result ranges from 2.2 percent to 3.5 percent (see second chart) in the 25-year range.
According to the report, “Perhaps the most surprising change is that consumers expected gas prices to rise by only 0.4 cents a year earlier in April, which completely reversed the March rise to 49.6 cents.” Retail gas prices have fallen since the peak of March, and that fact was immediately recognized by consumers. The change in gas price expectations may be due in part to the announcement of Biden’s strategic oil reserves and the relaxation of some seasonal EPA rules. “
The report added, “Nevertheless, the April survey provides temporary evidence of a slight gain in sentiment, which is still close to reassuringly low.” There are still significant sources of economic uncertainty that could easily reverse April’s gains, including the impact on the domestic economy from the Putin war and the potential impact of the new Covid form.
A return to consumer sentiment, especially in anticipation of the future, could be a knee-jerk reaction to lower gas prices. Economic risks continue to mount due to Russia’s aggression in Ukraine, the beginning of the Fed’s austerity cycle, and the continuing wave of new Kovid-19 lawsuits. Ramping up negative political advertising during midterm elections could also affect consumer sentiment in the coming months. The overall economic outlook remains highly uncertain.
Robert Hughes
Robert Hughes joined AIER in 2013 for over 25 years researching economic and financial markets on Wall Street. Bob previously headed Brown Brothers Harriman’s Global Equity Strategy, where he developed an equity investment strategy that combines top-down macro analysis with bottom-up fundamentals.
Prior to BBH, Bob was a senior equity strategist at State Street Global Markets, a senior economic strategist at Prudential Equity Group, and a senior economist at Citicorp Investment Services and a financial markets analyst. Bob holds an MA in Economics from Fordham University and a BS in Business from Lehigh University.