LIVE MARKETS-Less rotten but still grim: UMich consumer sentiment

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LESS ROTTEN BUT STILL GRIM: UMICH CONSUMER SENTIMENT

The mood of the nervous American consumer, who shoulders the burden of about 10% of the U.S. economy, is less bleak this month than originally thought.

The University of Michigan's (UMich) second and final take on April consumer sentiment USUMSF=ECI was upwardly adjusted to 52.2 from its originally stated 50.8.

Even so, it's the lowest the index has been since July 2022 and marks an 8.4% drop from the final March reading.

Survey participants' assessment of present conditions was revised 5.8% higher, while near-term expectations improved by a negligible 0.2%, also the lowest since July 2022.

"Expectations have fallen a precipitous 32% since January, the steepest three-month percentage decline seen since the 1990 recession," writes Joanne Hsu, UMich's director of Consumer Surveys. "Consumers perceived risks to multiple aspects of the economy, in large part due to ongoing uncertainty around trade policy and the potential for a resurgence of inflation looming ahead."

The closely-watched inflation expectations element of the report showed modest near-term improvement.

Respondents now expect price growth of 6.5% a year from now, cooler than the originally stated 6.7% but well over double the most recent core CPI reading, suggesting consumers' tariff jitters are intensifying.

Longer-term, consumers' five-year inflation expectations held firm at 4.4%.

Are consumers' inflation expectations accurate predictors of hard inflation data?

They are not.

The graphic below shows year-ahead inflation expectations almost always run hotter than actual core CPI one year later.

But it's the psychological effect that high inflation expectations have on consumer behavior that concerns folks like Federal Reserve Chair Jerome Powell, as it has the potential to result in a self-fulfilling prophecy.

(Stephen Culp)

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