Consumer Confidence Continues Inflation-Driven Nosedive

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That’s how many months in the last 10 we’ve seen a popular measure of consumer confidence fall, and the latest dip could mean a drop in spending will follow. 

The University of Michigan’s Index of Consumer Sentiment—which uses surveys to measure people’s sentiments about business conditions, government economic policy, and their own personal finances—has been on a downward trajectory since peaking in April and fell again in February, sharply. In fact, confidence fell almost twice as fast in February), mainly because of rapidly rising inflation, reduced confidence in government policies, and a worsening long-term economic outlook, the surveys show. It’s now at its lowest point since October 2011.

“The Sentiment Index now signals the onset of a sustained downturn in consumer spending,” Richard Curtin, chief economist of the University of Michigan’s Surveys of Consumers, wrote in a commentary released with the index Friday. Consumer spending is a major driver of the economy, so less of it can hurt the prospects for growth.

There are reasons to be skeptical, however, about just how much of today’s pessimism will translate into people hoarding their pennies instead of spending them, since the pandemic-era economy is anything but normal. For one thing, all the extra money people socked away over the last few years might be burning holes in their pockets, Curtin said.

Interestingly, all of February’s decline came from households with incomes of $100,000 or more. In addition to inflation fears, people thought their wealth would be affected by a lack of future stock market gains, Curtin said.

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Article Sources

  1. University of Michigan Surveys of Consumers. “Consumer Sentiment Index.” Accessed Feb. 11, 2022.

  2. Federal Reserve Bank of St. Louis. “What Is Consumer Confidence, How Is It Measured? | St. Louis Fed.” Accessed Feb. 11, 2022.