Consumer Sentiment Drops as Short-Term Inflation Expectations Rise
Once again, short-term inflation expectations have increased, as indicated by the latest UMich sentiment survey. One-year expectations for April finalized at 3.2%, up from the preliminary 3.1
% reported earlier and 2.9% in March. This marks the highest level since November 2023.
The headline sentiment for April also decreased from three-year highs. Consumers' assessments of their current financial situation and the economic outlook for the next year both reached four-month lows. The gauge for current conditions fell from 82.5 to 79, while expectations dropped from 77.4 to 76.
Joanne Hsu, the survey director, noted that while consumers are increasingly frustrated with high prices in their daily expenses, concerns about prices for major purchases like durable goods, vehicles, and homes remained relatively steady compared to last month.
About 38% of consumers expressed that high prices were negatively impacting their living standards, up from 33% in the previous month.
The sentiment indicators also shed light on voters' economic sentiments leading up to the presidential election in November. President Joe Biden's recent polling boost in key battleground states has diminished largely due to economic pessimism, according to the latest Bloomberg News/Morning Consult poll.
Hsu emphasized that consumers are still uncertain about the economy's future trajectory pending the election outcomes.
There are notable partisan differences in economic views, with sentiment among Republicans dropping about 6 index points this month. Republicans reported declines across four out of five components of the sentiment index, reflecting a broad downturn in their economic outlook. However, despite these declines, Republican sentiment remains higher than levels seen in 2022 and 2023.
Interestingly, the current reading for Republicans' Expectations Index is the second-highest since the end of 2020, following last month, as the Trump presidency concluded.