Covid-19 variants and high inflation dropped consumer sentiment near its lowest mark in a decade, according to January’s University of Michigan Survey of Consumers.
The index was listed at 68.8, lower than 70.6 in December and far worse than the January 2021 reading of 79. The index has remained at historical lows over the past six months (70.3), a sharp drop from the average of nearly 83 in the first six months of 2021.
Three-quarters of consumers early this month ranked inflation as a more serious problem than unemployment, according to the survey. That impact was especially prevalent in lower-income consumers: The Sentiment Index dropped by nearly 9.5 percent in early January among households with total incomes of less than $100,000, but increased by 5.7 percent for those with more. A similar split occurred in the national economic outlook.
One-third of consumers reported being in a worse financial position than last year, slightly above April 2020’s 32 percent, the lowest reading since 2014. Twice as many households with incomes in the lowest third reported worsening finances than the wealthiest — 40 versus 20 percent, respectively. Nearly half of consumers expect inflation to outpace income growth. “Even among the more optimistic, they are still more likely to anticipate bad rather than good economic times in the year ahead,” stated Richard Curtin, chief economist at Surveys of Consumers.
Confidence in government economic policy is at its lowest in eight years. “It will be a difficult task to gauge the appropriate mix of fiscal and monetary policies when such fine-tuning is necessary in an era of large economic and non-economic disruptions,” Curtin added. “The most crucial and difficult task will be defusing the developing wage-price spiral.”