MACRO: US consumer morale plunged to lowest levels since 2011

University of Michigan’s preliminary data for August turned out to be a huge miss. The headline consumer sentiment index crashed below Covid-19 crisis lows, reaching lowest levels since 2011. The print of 70.2 is well below forecasts as markets anticipated that the gauge would remain unchanged at 81.2. Other major subindices (expectations and current conditions) tanked as well. All in all, preliminary figures for August indicate that the sentiment among Americans is even weaker than in March and April 2020, when the pandemic hit the global economy. 

Source: Bloomberg via ZeroHedge

Poor confidence among all voters

What is remarkable about today’s report is that the confidence dropped for both Republicans and Democrats. Earlier Michigan’s reports were sometimes said to be a political barometer, for instance, when Donald Trump was the President of the United States the confidence used to be high among Republicans, but not necessarily among Democrats (and vice-versa when the US President was a Democrat). For this reason, today’s slump among both Republicans and Democrats may raise serious concerns. 

Confidence fell dramatically among both Republicans and Democrats, which should be particularly alarming as the index used to be a political barometer in the past. Source: Bloomberg via ZeroHedge

“The losses in early August were widespread across income, age, and education subgroups and observed across all regions. Moreover, the loses covered all aspects of the economy, from personal finances to prospects for the economy, including inflation and unemployment,” said the survey chief economist Richard Curtin. 

“Consumers have correctly reasoned that the economy's performance will be diminished over the next several months, but the extraordinary surge in negative economic assessments also reflects an emotional response, mainly from dashed hopes that the pandemic would soon end,” he added. 

He also added some optimistic remarks, but at the same time suggested that new restrictions may easily spook consumers: “In the months ahead, it is likely that consumers will again voice more reasonable expectations, and with control of the Delta variant, shift toward outright optimism. Consumers' reaction to Delta's modestly higher precautionary measures indicates the difficulty of producing optimal policy responses.”

Inflation expectations

Meanwhile, figures with regard to inflation expectations came in mixed. 1-year inflation outlook eased slightly, falling from 4.7% to 4.6%. On the other hand, 5-year inflation outlook increased from 2.8% to 3.0%. Rising long-term inflation expectations may suggest that consumers do not necessarily perceive price growth as “transitory” (the word notoriously used by the Fed members). Apart from that, short-term inflationary risks may still be tilted to the upside by some estimates, for instance, if you look at high PPI inflation amid ongoing supply chain disruptions (we covered this issue in yesterday’s MACRO comment).

Source: Bloomberg via ZeroHedge