The final November results from the University of Michigan Surveys of Consumers show overall consumer sentiment declined for the month, holding near historically low levels (see first chart). The composite consumer sentiment decreased to 56.8 in November, down from 59.9 in October. The index hit a record low of 50.0 in June down from 101.0 in February 2020 at the onset of the lockdown recession. The decrease in November totaled 3.1 points or 5.2 percent. The composite index remains consistent with prior recession levels.
The current-economic-conditions index dropped to 58.8 versus 65.6 in October (see first chart). That is a 6.8-point or 10.4 percent decrease for the month. This component is just five points above the June low of 53.8 and remains consistent with prior recessions.
The second component — consumer expectations, one of the AIER leading indicators — fell 0.6 points, or 1.1 percent for the month, to 55.6. This component index is 8.3 points above the July 2022 low of 47.3 and remains consistent with prior recession levels (see first chart). According to the report, “Consumer sentiment fell 5% below October, offsetting about one-third of the gains posted since the historic low in June.” The report adds, “Along with the ongoing impact of inflation, consumer attitudes have also been weighed down by rising borrowing costs, declining asset values, and weakening labor market expectations. Buying conditions for durables, which had markedly improved last month, decreased most sharply in November, falling back 19% to its September level on the basis of high interest rates and continued high prices.” The report further notes, “Long-term business conditions declined a more modest 6%, while short-term business conditions and personal finances were essentially unchanged.”
The one-year inflation expectations ticked down in November, falling to 4.9 percent. The result remains below the back-to-back readings of 5.4 percent in March and April but above the 4.7 percent reading in September (see second chart).
The five-year inflation expectations ticked up, coming in at 3.0 percent in November. That result is well within the 25-year range of 2.2 percent to 3.5 percent (see second chart). The report states, “Long run inflation expectations, currently at 3.0%, have remained in the narrow (albeit elevated) 2.9-3.1% range for 15 of the last 16 months.” Furthermore, “Uncertainty over these expectations remained at an elevated level, indicating that the general stability of these expectations may not necessarily endure.”
Pessimistic consumer attitudes reflect a significant list of concerns, including inflation, rising interest rates, falling asset prices, and growing labor market pessimism. Overall, economic risks remain elevated due to the impact of inflation, an aggressive Fed tightening cycle, and the continued fallout from the Russian invasion of Ukraine. The economic outlook remains highly uncertain. Caution is warranted.
Robert Hughes
Robert Hughes joined AIER in 2013 following more than 25 years in economic and financial markets research on Wall Street. Bob was formerly the head of Global Equity Strategy for Brown Brothers Harriman, where he developed equity investment strategy combining top-down macro analysis with bottom-up fundamentals.
Prior to BBH, Bob was a Senior Equity Strategist for State Street Global Markets, Senior Economic Strategist with Prudential Equity Group and Senior Economist and Financial Markets Analyst for Citicorp Investment Services. Bob has a MA in economics from Fordham University and a BS in business from Lehigh University.