US Consumer Confidence Is Tanking, 5.3% Inflation Expected
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the cliff-notes:
- the University of Michigan consumer sentiment survey tanked into contraction from 69.1 to 65.6
- it was a huge, statistically impressive 3-sigma (standard deviation) miss below the mean analyst estimate
- 5-10-year inflation expectations rising to 5.3% is one of the big reasons why current and forward sentiment about the economy is so sour
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The University of Michigan consumer sentiment survey, known as the UMich survey, tanked into contraction from 69.1 to 65.6. The survey goes out to ~500 participants via telephone, and gathers information on consumer expectations for the economy—the core questions revolve around personal finances, business conditions, and buying conditions, i.e. prices on things that we buy.
The responses from survey participants are turned into an index that oscillates as low as 50 and as high as 110. A drop below the ~70 level has historically lined up with economic recession, as you can see outlined in the red bars. After a quick trip into economic expansion around last September, the survey has made a swift reversal and has been declining precipitously.
Consumer sentiment toward current and future US economic conditions is once again worsening rapidly:
Here's the entire survey broken up into its headline component and its 4 main subcomponents—the analyst estimate is located in the leftmost 'Surv(M)' column. As you can see, UMich Sentiment, Current Conditions, and Expectations were expected to expand to 72 and they all contracted instead to varying degrees, with consumers' attitudes toward current conditions taking the biggest hit:
It was a huge, statistically impressive 3-sigma (standard deviation) miss below the mean analyst estimate. Look at the number of times an estimate was made and they all aggregate around 71.8, rounded to 72—that large cluster of red bars in the center of the bell curve is the mean analyst estimate for consumer sentiment.
Where did consumer sentiment actually come in for June's preliminary survey? All the way over to the left, where that yellow diamond is.
Analysts got it so wrong, that it begs the question: just how out of touch with reality are these people? Of course, these projections are based on data and not mere anecdotal experience, but these establishment economists must be so totally divorced from everyday American life if they believe economic sentiment will improve during a month where it actually fell off a cliff:
Consumer inflation expectations for the current year remained anchored around 3.3%, where CPI is today—but they are exploding higher on longer time horizons. The median expectation from consumers for 5-10 year inflation stayed around 3%, but the mean estimate has exploded from 4.7% to 5.3%, the highest value since the 90s, and the highest expected mean long-term price inflation since before I was born.
The last time that forward-looking price inflation expectations exploded as they are now despite a decline in yearly CPI was the early 1970s, a decade where we had several bouts of elevated and spiking price inflation. Seems like consumers are shell-shocked from the last few years and expect more of the same in the years to come—one of the big reasons why current and forward sentiment about the economy is so sour:
Final thought: whatever a statistician tells you, multiply it a few times over.
Take it easy,
Joe Consorti
Theya is the world's simplest Bitcoin self-custody solution. With our modular multi-sig vaults, you decide how to hold your keys.
Whether you want all your keys offline, shared custody with trusted contacts, or robust mobile vaults across multiple iPhones, it's Your Keys, Your Bitcoin.
Download Theya on the App Store.