U Mich Survey Shows 40% Consumer Sentiment Uptick Since June 2022

There was a slight improvement in consumer sentiment this month, as inflation’s heady pace ticked lower.

But while the University of Michigan’s preliminary reading for the month showed the consumer sentiment index at 69, up from a final reading of 67.9 in August, expectations on inflation were mixed. Consumer surveys of one-year inflation expectations fell for the fourth straight month, to 2.7%. That’s slightly lower than the August reading of 2.8% and represents the lowest level since December of 2020.

But the five-year inflation outlook edged up to 3.1% from 3% in July.

“Long-run inflation expectations remain modestly elevated relative to the range of readings seen in the two years pre-pandemic,” the University said.

At the moment, at least thus far into September, the boost in sentiment is tied to an improvement in buying conditions for durables, driven by more favorable prices as perceived by consumers, the University reported.

“Sentiment is now about 40% above its June 2022 low, though consumers remain guarded as the looming election continues to generate substantial uncertainty,” the University’s release noted.

Thus there may be some volatility in the sentiment through the next two months as far as sentiment is concerned.

Long-Term Expectations and Spending Habits

Long-term inflation expectations, at north of 3%, are well above the central bank’s 2% target, and arguably above an important psychological barrier, as consumers tend to look out at the longer term when they plan for their financial futures. If the idea is that over the long run, prices will be higher, households start making adjustments to their budgets and spending.

The PYMNTS Intelligence report, “How Consumer Perception of Inflation Forces Many to Trade Down,” found that consumers, through the last several years, have taken note of the rising cost of fresh meat and produce. Prepackaged products were close behind, with 78% of consumers noting a rise in cost. This is followed by prepared foods and household goods, at 77% each. Nearly three-quarters of consumers believe restaurant prices are on the rise.

In fact, in terms of that last metric, per the most recent data on inflation, though inflation’s at a three-year low, the cost of dining out has become more expensive. The measure of food consumed away from home was up to 0.3% as measured in August, up from July’s monthly 0.2% push higher.

On an annualized basis, the measure was up 4%.

In separate reports, we’ve noted that 55% of consumers have limited spending capacity due to inflation, and 49% of consumers have shifted their shopping preferences due to inflation. The fact that longer-run inflation expectations are still above 3% means that consumer retrenchment of spending will continue.