On Friday, Wall Street celebrated one of the best monthly readings for Consumer Sentiment that we’ve seen in a very long time. The report was the monthly survey by the University of Michigan of the American Consumer’s Sentiment, whether consumers are upbeat or downbeat about their economic futures. This particular sentiment indicator is so important because consumers, retail buyers like you and me, make up about two-thirds of the economic activity in this country.
When we feel that the economy is going well, we shop, purchasing the goods and services we need for maintaining our lifestyle, and if we’re really optimistic, maybe a little more. Those discretionary items are the “nice to haves” we may not need but want. Optimism creates retail demand, which drives more output and, ultimately, more workers as producers seek to meet customers’ demands.
But, as you know, we consumers have been feeling so upbeat lately. In fact, we’ve been pretty blue of late for the past couple of years, what with the Covid-10 Pandemic and more recently with this bout of inflation. Last summer, we hit a real low point; the only thing you could say about the consumers was that we were just plain glum. In June last summer, the Michigan Survey of Consumer Sentiment hit an all-time low of just 50. The combination of the Pandemic lockdown, newly instituted oil sanctions, and the height of inflation was overwhelming. It’s fair to say that most of us did not expect such a combination of adverse economic events to strike all at once.
It had been more than 40 years since we experienced inflation near the level we reached last year. As for those Russian oil sanctions, weren’t we recently a net oil exporting country? How did we see the gas pump price explode as it did in 2022? And, most of all, how did our political leaders decide to close businesses and lay off workers for health concerns? As Americans, we had always decided when and if we went to work. But during the Pandemic, our leaders, the mayors, governors, and even President assumed “emergency powers” and took control of our lives. Whether we could work, when we could shop or assemble, and even whether we could go to work, were we “essential?”
It all had been building for a while, and it hit in June of 2022 when Consumer Sentiment hit that low water mark of 50.
However, things are better now; you’re undoubtedly feeling that yourself. “Back to normal” is our mantra. And indeed, it seems that’s the case. After swooning to levels not seen since the Great Depression during those Economic Lockdowns, the economy looks to be getting back on track. As I reported a few days ago, the Atlanta Fed’s GDP Now Cast has the economy currently growing at better than 2%. Not great, but also not the recession that we had feared earlier. Jobs have switched from the strong likelihood that you’d be laid off if you worked in a non-essential business to today when all able-bodied workers are in demand. Help wanted signs have been in windows for months, as anyone who wants to work can. And at some pretty good wages.
We’re all feeling better now. Things still aren’t great, but neither does it look like Armageddon is just around the corner, as it did last year. Prices are still rising faster than anyone likes. The latest inflation rate came in at 3%. That’s above the Federal Reserves Inflation Target, meaning we’ll likely see at least one more interest rate hike. And inflation does cut into our real monthly income, reducing those “extra” funds we had before. And that War over in Ukraine still rates, and who knows where that could lead? Then there are the problems of drugs, illegal immigration, and decaying cities.
So we’re not saying that everything is perfect, not like we thought back in February 2000, when the Michigan Survey recorded our sentiment at an all-time high of 111. We’re nowhere close to that kind of optimism.
But we’re out of our slump of last summer when consumer sentiment was just 50. No, we’re right in the middle at a current sentiment reading of 72, not the euphoria of the turn of the century, but not the doom of last summer. We’re somewhere in the middle, and that’s just about right.
Consumer Sentiment (blue, left scale), Economic Growth (GDP, red, right scale)
Reference: http://www.sca.isr.umich.edu/
