U.S. consumer sentiment darkened considerably in February as confidence in the Biden administration’s policies declined and views of the long-term prospects for the economy plunged to the worst level in a decade.
The University of Michigan’s consumer sentiment index fell to a reading of 62.8 in February, down from 67.2 percent in January. Views of present conditions declined from a month ago, with the index down more than 20 percent from a year ago. The expectations component fell by even more in January and is down by 16 percent from the month Joe Biden took office.
“The February descent resulted from inflationary declines in personal finances, a near-universal awareness of rising interest rates, falling confidence in the government’s economic policies, and the most negative long term prospects for the economy in the past decade,” said Richard Curtin, the survey’s chief economist.
Curtin said that the decline in the sentiment figure came because of a very sharp decline among households with incomes over $100,000.
Inflation expectations picked up in February after a brief decline amid the omicron wave in January. Consumers now expect five percent inflation over the next 12 months, the most since 2008. Long-term inflation expectations also rose, hitting 3.1 percent, the highest since 2010.
“The Fed’s clinging to the transient hypothesis meant missed opportunities to nip inflation at its earliest stages; aggressive actions are now needed to avoid the potential establishment of an inflationary psychology that acts to form a self-fulfilling prophecy,” Curtin said.
Buying attitudes weakened considerably in February, with the share of consumers saying now is a good time to buy a house, a car, or a major appliance falling compared with a month ago. This is no doubt linked to rising inflation and shortages of houses, autos, and some major appliances.
The survey was conducted almost entirely prior to Russia’s latest invasion of Ukraine.
Although sentiment fell sharply from January, it actually improved a bit from the midmonth reading, likely due to the waning of the omicron wave of Covid-19 infections.