By Nathalie Voit
Consumer sentiment in March 2022 was downwardly revised to 59.4 from a preliminary reading of 59.7 in mid-March, according to survey results released by the University of Michigan on March 25.
This month’s final value was 5.4%, down from the February final of 62.8 and 30.0% under its reading of 84.9 in March 2021. This month’s dismal score was also the lowest since August 2011, the University of Michigan said.
Related indexes also continued their downward trajectory. The current economic conditions index fell to 67.2 from 68.2 in February, a decline of 1.5%. However, the index was down 27.7% over the last twelve months.
The index of consumer expectations sank by 8.6% to 54.3 in March. Year-over-year, the index is down 31.9%.
The less-than-ideal final report for March was driven by rising pessimism due to inflation, which is expected to remain at 5.4% in the year ahead, its highest since November 1981. More than at any other point in the survey’s history except during the 2008 financial crisis and the recession of 1979-81, consumers expressed worries about reduced living standards due to inflation, U-M economist and Director of the Surveys Richard Curtin said.
Additionally, nearly one in three Americans (32%) expected their personal finances to worsen over the year, the highest recorded level since the surveys began in the mid-1940s. Falling inflation-adjusted incomes combined with a bleak personal finance outlook meant that half of all U.S. households anticipated a decline in their real income in 2022. The only redeeming factor of the surveys was the labor market, Curtin said. Consumers were more likely to anticipate declines rather than increases in the unemployment rate (30% vs. 24%).
Commenting on the much-dreaded wage-price spiral, Curtin wrote: “These factors represent the necessary (but not sufficient) conditions for the development of inflationary psychology as a self-fulfilling prophecy. Prevention of inflationary psychology is much less costly before it becomes ingrained in the economic behavior of consumers and firms. Confidence that economic policies will resolve the problem is essential.”
Unfortunately, only 16% of consumers expressed confidence that current economic policies are working. In contrast, over three times that amount unfavorably assessed the Washington agenda, he said.
“Just when difficult decisions need to be made about monetary and fiscal policies, consumers have expressed loss in confidence in government economic policies,” Curtin wrote. “Moreover, most consumers are uncertain about the ultimate impact Putin’s war [rather than the new Covid-19 variant] will have on their personal economic situation,” he added.
