Consumer Sentiment Down To Its Lowest Point Since 2011

March brought another dip in consumer sentiment, with the University of Michigan’s index registering its lowest level since August 2011.

The March index was revised down to 59.4 from a reading of 59.7 two weeks ago. An index of 100 is equal to sentiment in Q1 1966. A year ago at this time, the index was 84.9.

Consumer sentiment is now down 41.6 points from its peak in February 2020 and is even below the lows seen in four of the last six recessions. 

“When asked to explain changes in their finances in their own words, more consumers mentioned reduced living standards due to rising inflation than any other time except during the two worst recessions in the past fifty years: from March 1979 to April 1981, and from May to October 2008,” Richard Curtin, chief economist for the University of Michigan Surveys of Consumers, told CNN.

Inflation is at a 40-year high in the U.S. and continues to accelerate here and around the world. New lockdowns in China due to Covid-19 and the war in Ukraine are contributing to price pressures.

“Moreover, 32% of all consumers expected their overall financial position to worsen in the year ahead, the highest recorded level since the surveys started in the mid-1940s,” Curtin added.

Consumers also said they expect a year-ahead inflation rate of 5.4%, the highest since November 1981.

The Federal Reserve recently raised interest rates by a quarter-point in an effort to combat inflation, its first hike since 2018. Fannie Mae’s Economic and Strategic Research Group expects the Fed to raise the federal funds rate five times in 2022 and eight times total through 2023.

Last week, Federal Reserve Bank of New York leader John Williams said he is open to a half-percentage-point interest rate increase at future Federal Open Market Committee meetings, suggesting the Fed needs “to be nimble and be able to adjust as we go along the way.”

“What the right decision is in a given moment will depend on the situation then,” he said.

“If it’s appropriate to raise interest rates by 50 basis points at a meeting, then I would think that we should do that. If it’s appropriate to do 25 [basis points] then we should do that. I don’t see any reason not to do one or the other.”

Williams serves as the vice-chairman of the FOMC.