Consumer sentiment declined marginally at the end of March 2022

the University of Michigan Consumer Sentiment Index (MCSI) ended March 2022 at 59.4, down 0.5% from the previous decade low of 59.7 recorded in the first half of March, according to final results released on March 25, 2022. The The main factor was the growing concern about inflationand respondents expect inflation to be 5.4% over the next 12 months, the highest reading since November 1981.

The final value of 59.4 for March 2022 puts the MCSI 5.4% below its final reading of 62.8 in February 2022 and 30.0% below its value of 84.9 a year ago. year in March 2021. Respondents mentioned inflation throughout the survey, whether the questions were about personal finances, the economic outlook, or purchasing conditions.

key takeaways

  • The Michigan Consumer Sentiment Index (MCSI) sank to a new decade low in late March 2022.
  • Rising inflation raised concerns about falling living standards.
  • Over the past 50 years, concerns about falling living standards have only increased during the worst recessions of this period, 1979-81 and 2008.

Expected reduced living standards

Richard Curtin, chief economist at the University of Michigan Consumer Surveys, observed: “When asked to explain changes in their finances in their own words, more consumers mentioned reduced living standards due to rising inflation than in any other time except during the worst two. recessions in the last fifty years: from March 1979 to April 1981, and from May to October 2008″.

In preliminary results from March, personal finances were expected to worsen in the coming year based on the largest proportion of respondents since the survey began in the mid-1940s. The final results show a further deterioration in sentiment, with 32% of respondents now expecting to be worse off a year from now. As a result of increased expectations about price increases and decreased expectations about income growth, half of all households surveyed anticipate that their inflation-adjusted income will actual income will decrease in the next year.

The only aspect of the economy about which respondents were optimistic was the Work market. They were slightly more likely to wait than the unemployment rate will fall rather than rise, by 30% versus 24%.

Inflationary psychology takes hold

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

He continued: “Preventing inflationary psychology is much less expensive before it becomes entrenched in the economic behavior of consumers and businesses. Confidence that economic policies will solve the problem is essential. Unfortunately, half of all consumers rated current policies unfavorably, more than three times the 16% who rated them favorably.

In the final February poll, many respondents indicated that aggressive action is necessary at this time “to prevent the possible establishment of an inflationary psychology acting to form a self-fulfilling prophecy.” However, many were concerned that the Federal Reserve it had missed opportunities to nip inflation in the bud in its early stages.

The January 2022 preliminary survey noted that respondents’ confidence in the government’s economic policies had fallen to its lowest level since 2014. This aspect of consumer sentiment has continued to erode in subsequent surveys.

Related indices continue to trend down

MCSI’s final March 2022 report also included the Current Economic Conditions Index and the Michigan Consumer Expectations Index. In the final report for March 2022, the Current Economic Conditions Index decreased 1.5% from February 2022 and 27.7% from March 2021. The Consumer Expectations Index decreased 8.6% from February and 31.9% from the previous March. All of this represented slight deteriorations from preliminary readings in early March.

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