Consumer sentiment falls to fresh decade low on inflation, University of Michigan survey finds

Jordan Yadoo
Bloomberg

U.S. consumer sentiment declined further in early February to a fresh decade low as views about personal finances deteriorated due to intensifying inflation concerns.

The University of Michigan's sentiment index dropped to 61.7, the lowest since October 2011, from 67.2 in January, data released Friday showed. The figure trailed the median estimate of 67 in a Bloomberg survey of economists.

The report's gauge of current conditions declined to 68.5, the weakest since 2011. A measure of future expectations decreased to 57.4, also the lowest in more than a decade.

Consumers expect an inflation rate of 5% over the next year, up from last month's reading of 4.9% and the highest since 2008. They expect prices will rise at an annual rate of 3.1% over the next five to 10 years, unchanged from a month earlier.

The government's consumer price index rose 7.5% in January, the fastest annual pace since 1982, as costs for food, housing and electricity jumped, a report showed Thursday.

As a result, 26% of respondents expected their financial prospects to worsen. That's the highest share since 1980 and an indication of the toll faster inflation is taking on household balance sheets.

It's also feeding through into more negative views about President Joe Biden's agenda. While Republicans have a more negative opinion, Democrats and political independents are growing increasingly pessimistic, the report showed. Poor government economic policies were cited by 51% of respondents, the highest share since 2014.

Bad financial times over the next five years were anticipated by nearly two-thirds of all consumers, representing the weakest long-term outlook in the past decade, according to the university's report.

The report suggests the recent volatility in the stock market is also weighing on sentiment. The entire decline in confidence so far this month was among Americans with incomes of at least $100,000.

Still, Americans have benefited from a largely resilient labor market. Employers unexpectedly added nearly half a million jobs in January. States across the country meantime have begun lifting mask mandates as case counts drop, offering some hope for a return to normalcy.