Friday, 25 May 2018 14:20

UMich Sentiment Slumps Near 2018 Lows As Income Expectations Tumble

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Preliminary data for May's UMich sentiment survey showed a tumble in current conditions (and small rise in hope) but the final data showed both sliding notably intra-month with the headline sentiment index at its lowest since January.

  • Headline Sentiment slipped from 98.8 prelim to 98.0 final from 98.8 in April

  • Current Conditions slipped from 113.3 prelim to 111.8 final from 114.9 in April

  • Expectations slipped from 89.5 prelim to 89.1 final from 88.4 in April

As Bloomberg notes, consumer sentiment in the U.S. settled back to a four-month low in May amid less-favorable buying conditions for homes and big-ticket items, according to a University of Michigan report Friday.

Notably, consumers anticipated income gains of 1.6 percent, down from 2.2 percent in April and 2 percent last year.


Sentiment tumbled most for the wealthiest Americans...

“Net price references were the least favorable for household durables since just prior to the Great Recession, for vehicles since 1997, and for homes since 2006 -- although higher home prices brightened prospects for selling homes,” Richard Curtin, director of the University of Michigan consumer survey, said in a statement.

“In past episodes, high and accelerating prices encouraged consumers to buy in advance of those increases. That response is largely absent in all markets except housing,” he said.

Year-ahead inflation expectations crept up to 2.8 percent, matching March as the highest since April 2016, from 2.7 percent in prior month.

Interestingly, Curtin notes that consumer reactions to the CPI inflation rate appear to have shifted in the past decade.

When asked to explain how their personal finances had changed, higher prices were cited to have worsened their financial situation by 8% in May, unchanged from last month and just above last year’s 7%. When examined over the past half century, these unaided references to inflation closely matched actual trends in the year-over-year change in the CPI - see the chart above.

That close relationship ended about a decade ago, and in the past year or so, as the CPI has risen, complaints about inflation have fallen. While gas price spikes could be cited as causing some of the recent divergence, those spikes were also widespread in the late 1970s and 1980s. While the reasons underlying the current divergence are unclear, it nonetheless signals a change in how consumers judge the impact of inflation on their personal finances. It may also suggest a change in their behavioral reaction to inflation.

And finally, confidence in a rising stock market dropped to its lowest since July 2017...


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