University of Michigan Final Consumer Sentiment Index Down for January 2022

The University of Michigan today (1-28-22) released its final Consumer Sentiment Index (CSI) for January. The CSI declined to a reading of 67.2 in January, down from 70.6 in December. This is a month-over-month decrease of -4.8% and is down -14.9% year-over-year (79.0 in January 2021).

The Current Economic Conditions dropped to a reading of 72.0 in January, down from 74.2 in December. This is a month-over-month decrease of -3.0% and is down -17.0% year-over-year (86.7 in January 2021).

The Index of Consumer Expectations fell to a reading of 64.1 in January, down from 68.3 in December. This is a month-over-month decline of -6.1% and is down -13.4% year-over-year (74.0 in January 2021).

In a statement and analysis prepared to accompany the release of the final January CSI, Dr. Richard Curtain (Ph.D., Economics), Director of Surveys for the University of Michigan said:

“Sentiment fell throughout January, posting a cumulative loss of 4.8%, sinking to its lowest level since November 2011. The current slump was due to two sharp declines separated by a brief interlude of rising optimism. The initial steep decline occurred in just two months, a 28.9% plunge in optimism from February to April 2020 due to the shutdown in the economy. Confidence recorded an equally strong recovery beginning in late-2020, rising 23.0% by April 2021. That upturn was reversed during the past nine months, with the Sentiment Index falling by 23.9%. The Delta and Omicron variants were largely responsible, but other factors, some of which were initially triggered by covid, have become independent forces shaping sentiment. While supply chains and essential workers have sparked the initial increases in prices and wages, a wage-price spiral that has subsequently developed is no longer tied to those precipitating conditions. Household spending had been supported by an extraordinary pace of rising home and stock prices that is likely to turn negative in the year ahead. Overall confidence in government economic policies is at its lowest level since 2014, and the major geopolitical risks may add to the pandemic active confrontations with other countries. Although their primary concern is rising inflation and falling real incomes (see the chart), consumers may misinterpret the Fed’s policy moves to slow the economy as part of the problem rather than part of the solution. The danger is that consumers may overreact to these tiny nudges, especially given the uncertainties about the coronavirus and other heightened geopolitical risks. Clear policy communication is insufficient if it does not also advance consumers’ understanding of the economic tradeoffs involved and their plans to actively alleviate any undue harm.”