University of Michigan Preliminary Consumer Sentiment Index Declines for March 2022

The University of Michigan today (Friday 3-11-22), released its preliminary Consumer Sentiment Index (CSI) for March. The Index of Consumer Sentiment declined to a reading of 59.7 in March, down from 62.8 in February. This is a month-over-month decrease of -4.9% and down -29.7% year-over-year (84.9 in March 2021).

The Current Economic Conditions dropped to a reading of 67.8 in March, down from 68.2 in February. This is a month-over-month decrease of -0.6% and down -27.1% year-over-year (93.0 in March 2021).

Finally, the Index of Consumer Expectations fell to a reading of 54.4 in March, down from 59.4% in February. This is a month-over-month decline of -8.4% and down -31.7% year-over-year (79.7 in March 2021).

In remarks and analysis prepared to accompany the release of the preliminary February 2022 CSI, Dr. Richard Curtain (Ph.D., Economics), Director of Surveys for the University of Michigan said:

“Consumer Sentiment continued to decline due to falling inflation-adjusted incomes, recently accelerated by rising fuel prices as a result of the Russian invasion of Ukraine. The year-ahead expected inflation rate rose to its highest level since 1981 and expected gas prices posted their largest monthly upward surge in decades. Personal finances were expected to worsen in the year ahead by the largest proportion since the surveys started in the mid-1940s. Consumers held very negative prospects for the economy, with the sole exception of the job market. Consumers were slightly more likely to anticipate declines rather than increases in the national unemployment rate. This underlying strength in jobs comes at the cost of pushing inflation even higher due to unrelenting pressures on aggregate demand and supply lines. The persistent strength in demand was a critical factor that shaped the last inflationary age from 1965 to 1982, with stagflation peaking only near its end. Current expectations are consistent with heightened pressures on wages to meet the continued growth in demand. Like the game of musical chairs, everyone continues racing around the circle of rising prices and higher wages. Although everyone knows the game will end, everyone still wants to obtain the highest income possible before they exit. The game is moderated by fiscal and monetary policies, which now favor increased federal spending and full employment over price stability, enabling ever more rounds of the game.

The greatest source of uncertainty is undoubtedly inflation and the potential impact of the Russian invasion of Ukraine. In the March survey, 24% of all respondents spontaneously mentioned the Ukraine invasion in response to questions about the economic outlook. The impact of this recognition was associated with a drop of 13.2 Index points in the Index of Consumer Expectations across all households. The difference was much larger for those who held higher inflation expectations: the difference was 33.5 Index-points on the Expectations Index for those who expected under 5% compared with over 5%.”