A red flag from consumer sentiment

I would now argue that the single most important economic datapoint of the past five years is the consumer sentiment report we get twice a month from the University of Michigan.?

More important, yes, than the jobs report. More so than even CPI. Because only this metric has adequately captured the public's frustration with the economy. This was the survey that in June of 2022 plunged to an all-time low.?It sank to a level (of 50) lower than it ever hit during the financial crisis. Lower than it had ever hit in?any?prior recession or economic period since the survey began in 1952!

That?was the moment the Federal Reserve began to massively hike interest rates, with inflation running around 9%. That was also probably the moment that it became extremely challenging for the incumbent party to keep the White House.?

For the past three years, experts have tried to downplay the significance of this report.?It's politically biased, they said during the Biden administration.?It's based on old phone-call technology, they explained, and was thus not as reliable as The Conference Board's rival measure, which had also weakened, but not to the same degree.?

But now, this survey is sending red flags again. And this is after it's been updated to use more internet-based survey technology! And crucially, this is now happening under the Trump administration, which would be wise to pay heed to its results this morning. Sentiment has now slumped to sub-58, bringing us back to levels that prevailed when inflation was running rampant in 2022.?

Sentiment among consumers this month is only three points better than it was at the worst point of the financial crisis, when this same measure fell to 55 in November of 2008. And consumers' five-year-ahead inflation expectations hit 3.9% in this preliminary March data--the highest in more than three decades, and higher than was ever reached after the pandemic.?

You can't draw a straight line from these results to exactly how the economy will perform in the coming months. Maybe falling egg prices will help boost sentiment next month. Maybe tariff concerns--which continue to be a top item of mention by survey participants--will suddenly move to the back burner.?

But when you pair these results with the anecdotes we've heard from corporate America--like Delta slashing its outlook, saying consumers are nervous about the economy, or the footwear trade group telling us sales have suddenly skidded this year--it tells you Something Major is going on.?

This report always comes out mid-morning on a Friday, and tends to get buried in the news flow. Markets hardly even react to it. Stocks shrugged it off this morning, with the Dow up 500+ points still as it closes out what's been a very bad week--its worst in two years. But neither Wall Street nor Washington should ignore what consumers are saying here.?