By Nathalie Voit

Consumer sentiment in January fell to 67.2 from 70.6 in December, its lowest level since November 2011, the University of Michigan (UMich) said on Jan. 28.

The Consumer Sentiment Index (CSI) dropped 4.8% from the previous month after preliminary results released on Jan. 14 revealed a 2.5% decline in the CSI since December, UMich said.

The CSI is now nearly 15% below its 79.0-reading recorded in January 2021.

Related indexes also posted downward trends. The Current Economic Conditions Index dipped 3% to 72.0 in January, down from 74.2 in December and 86.7 in January 2021, an annual decline of 17.0%.

The Expectations Index also sank 6.1% from last month to 64.1 in January as consumers anticipate a weakened economy ahead. The index fell by 13.4% year-over-year, according to the survey.

The COVID-19 variants were primarily responsible for January’s grim survey results, said Survey of Consumers chief economist Richard Curtin.

The decline in consumer sentiment resulted from a depressive inflationary spiral initially caused by supply-chain strains and labor shortages in the economy, said Curtin.

Curtin warned about the danger of consumers overreacting to the Federal Reserve’s tight monetary policy, which includes hiking interest rates soon to curb inflation.

“Although [respondents’] primary concern is rising inflation and falling real incomes, consumers may misinterpret the Fed’s policy moves to slow the economy as part of the problem rather than part of the solution. The danger is that consumers may overreact to these tiny nudges, especially given the uncertainties about the coronavirus and other heightened geopolitical risks.”

“By slowly hiking rates, one of the Fed’s goals is to prevent any noticeable impact on all other aspects of the economy except inflation,” he added.

“Such a soft landing has a reasonable chance of success if accompanied by a positive economic environment, not one where the majority of consumers view the economy as already in a weakened state.”

Curtin predicted that household spending will slow in 2022 as real estate prices and stocks post negative returns.