UMich Sept prelim consumer sentiment 71.0 vs 72.2 expected


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Consumer sentiment data form the University of Michigan

UMich Sept prelim consumer sentiment
  • Prior was 70.3
  • Current conditions 77.1 vs 78.5 prior
  • Expectations 67.1 vs 65.1 prior
  • 1-year inflation 4.7% vs 4.6% prior
  • 5-10 year inflation 2.9% vs 2.9% prior

This report drew intense interest last month when it collapsed through the pandemic lows. However the August retail sales report didn’t mirror that weakness as it widely beat expectations.

The problem with this report is that it’s increasingly a political barometer, which you can see when you break down sentiment by Democrats and Republicans.

The Fed does look closely at the inflation expectations numbers though. The buying intentions data for homes, vehicles and durables is also instructive.

Here’s the commentary in the survey:

The steep August falloff in consumer sentiment ended in early September,
but the small gain still meant that consumers expected the least
favorable economic prospects in more than a decade. Just two components
posted additional declines: buying attitudes for household durables
fell again in early September to a low reached only once before in 1980,
and long term economic prospects fell to a decade low. The decline in
assessments of buying conditions for homes, vehicles, and household
durables left all three near all-time record lows (see the chart), with
the declines due to spontaneous references to high prices. Some
observers anticipated that the early August plunge in confidence would
quickly disappear since it was driven by emotions. Emotions have long
been known to speed responses, the so-called fight or flight response,
which was the adaptive function they performed in early August. Many
other sources of economic data have since shifted in the same direction,
and point toward slower growth in consumer expenditures and purchases
of housing to the end of 2021.

There are at least three potential
reactions to inflation. Consumers have initially reacted by viewing
the rise in inflation as transitory, believing that prices will
stabilize or could even fall in the future. As a result, postponing
purchases is seen as a viable strategy. This implies a slowdown of
spending in the months ahead and a more robust rebound later in 2022.
The main alternative is that inflation will not be transient but will
rise further due to an unprecedented expansion in fiscal and monetary
policies. The resulting rise in inflationary psychology will lessen
resistance to rising prices and stiffen demands for increased wage
gains. This reaction takes a long time to fully develop, and is
contingent on significant increases in long-term inflation expectations,
which have yet to be observed. The final alternative is that consumers
may believe that the most effective strategy to maintaining their
purchasing power is to emphasize increases in their incomes, net of
taxes and transfers. The effectiveness of pandemic transfers were shown
by their successes in offsetting hardships among those most vulnerable
to economic disparities. Transfers to offset the inflationary erosion
of living standards could be justified in a similar manner.

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