A surge in geopolitical anxiety and stubborn inflation pushed US consumer sentiment to its lowest level on record in April, even as actual spending shows little sign of weakening.
"People across different ages, income levels and political opinions reported lower sentiment in April," Joanne Hsu, director of the University of Michigan’s consumer survey, said. She noted that responses turned more positive late in the month after the U.S. and Iran agreed to a two-week ceasefire.
The University of Michigan's consumer-sentiment index dropped to a final reading of 49.8, from 53.3 in March. That is below the previous low of 50 seen in June 2022 and marks the worst reading in the survey's more than 50-year history. Consumers' expectations of inflation in the year ahead surged to 4.7% from 3.8% in March, with long-term expectations climbing to 3.5%.
The record-low confidence could lead to reduced consumer spending, which would negatively impact corporate earnings and increase pressure on the Federal Reserve. However, despite the sour mood, U.S. retailers saw solid sales gains in March, and major banks reported that household finances are holding up well.
The depths of despair are curious, with perceptions of the economy now darker than during the Covid-19 pandemic, the 2008-09 financial crisis, and the high inflation of the late 1970s. Hsu suggested that pervasive, downbeat social-media feeds may have contributed to a downward shift in how people view the economy over the past five years.
Federal Reserve officials are watching long-run inflation expectations closely. A continued rise could be a sign the central bank is losing credibility as a warden of stable prices. "I still find the signal from the data meaningful," Fed official Christopher Waller said in a speech this month, even while acknowledging the survey "hasn't tracked closely with actual spending in recent years."
This article is for informational purposes only and does not constitute investment advice.
