February 3, 2023

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UMich June prelim consumer sentiment 86.4 vs 84.4 expected

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UMich consumer sentiment data

  • Prior was 82.9
  • Current conditions 90.6 vs 91.3 exp
  • Expectations 83.8 vs 78.7 exp
  • 1-year inflation 4.0% vs 4.7% exp
  • 5-10 year inflation 2.8% vs 3.0% exp

The rise in the expectations component along with falling inflation expectations is a true goldilocks scenario and exactly what the Fed wants to see.

Comments in the report:

Consumer sentiment rose in early June, recouping two-thirds of May’s
loss. The early June gain was mainly among middle and upper income
households and for future economic prospects rather than current
conditions. Stronger growth in the national economy was anticipated,
with an all-time record number of consumers anticipating a net decline
in unemployment. Rising inflation remained a top concern of consumers,
although the expected rate of inflation declined in early June.
Spontaneous references to market prices for homes, vehicles, and
household durables fell to their worst level since the all-time record
in November 1974 (see the chart). These unfavorable perceptions of
market prices reduced overall buying attitudes for vehicles and homes to
their lowest point since 1982. These declines were especially sharp
among those with incomes in the top third, who account for more than
half of the dollar volume of retail sales. Fortunately, in the
emergence from the pandemic, consumers are temporarily less sensitive to
prices due to pent-up demand and record savings as well as improved job
and income prospects. The acceptance of price increases as due to the
pandemic, makes inflationary psychology more likely to gain a foothold
if the exit is lengthy. While expansive monetary and fiscal policies
are still warranted, the accompanying rise in inflation will cause
uneven distributional impacts. Those impacts have already been noticed
in June among the elderly and lower income households. A shift in the
Fed’s policy language could douse any incipient inflationary psychology,
it would be no surprise to consumers, as two-thirds already expect
higher interest rates in the year ahead.

That’s quite the plea.
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