Consumer Confidence Falls to a New Decade Low as Inflation Fears Rise

A recent University of Michigan survey found that consumer sentiment fell to a new decade low on concerns about inflation growing up amid the ongoing Russian invasion of Ukraine.

The University of Michigan Consumer Sentiment Index (MCSI), a monthly survey of how consumers feel about the economy, personal finances, business conditions, and purchasing conditions, ended March 2022 with a 59 .4%, which represents a decrease of 5.4% from the final reading of 62.8% in February 2022 and a decrease of 30.0% from the index reading of 84.9% a year ago in March 2021.

The end-March reading of 59.4% is 0.5% lower than what was already a decade-low of 59.7 recorded in mid-March.

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The chief economist of the University of Michigan Survey of Consumers, Richard Curtin, said policymakers should consider the Russian invasion of Ukraine, which began on February 24 and entered its 32nd day on Sunday, a major source of ongoing economic disruption, with new COVID variants also being quite a minor factor.

The survey found that inflation has been the main cause of the growing pessimism, with the expected inflation rate for the following year at 5.4%, the highest since November 1981.

Federal Reserve Chairman Jerome Powell testifies before the Senate Banking Committee hearing on Capitol Hill in Washington, U.S., on December 1, 2020. (Susan Walsh/Pool via REUTERS/File Photo)

“When asked to explain changes in their finances in their own words, more consumers mentioned reduced living standards due to rising inflation than at any time except during the two worst recessions in the last fifty years: March from 1979 to April 1981, and from May to October 2008,” Curtin said. “Furthermore, 32% of all consumers expected their overall financial position to worsen in the coming year, the highest level recorded since surveys began in the mid-1940s.”

Curtin assessed that the combination of rising prices and less positive income expectations meant that half of all households anticipated declines in inflation-adjusted income in the coming year.

The only area of ​​the economy where consumers remained optimistic was the labor market, with 30% of respondents anticipating in March that the unemployment rate was more likely to see further declines over the next year compared to 24. % of respondents who anticipated increases

“Strong job growth will continue to put upward pressure on wages, resulting in higher earnings and better job prospects,” Curtin said. “This force will then act to expand consumer demand and ultimately lead to another cycle of price and wage increases. These factors represent necessary (but not sufficient) conditions for the development of inflationary psychology as a prophecy.” self-fulfilling”.

In addition, he assessed that “the prevention of inflationary psychology is much less expensive before it becomes entrenched in the economic behavior of consumers and businesses.” While confidence that economic policies will solve the problem is essential, Curtin noted, sadly half of all consumers rated current policies unfavorably, more than triple the 16% who rated them favorably.

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According to Investopedia, many consumers were concerned that the Federal Reserve was not acting adequately on the chances of nipping inflation in the bud in its early stages. The MCSI assessed in mid-January that respondents’ confidence in government policies fell to its lowest level since 2014.

MCSI’s end-March findings rated current economic conditions at 67.2%, down 1.5% from 68.2% in February and down 27.7% from a year ago. March 2021. The consumer expectations index was at 54.3% as of the end of March, down 8.6% from February’s 59.4% and a decrease of 31.9% from a year earlier in March of 2021.

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