Consumer sentiment in the US has plunged to an all-time low amid soaring inflation, even as Treasury Secretary Janet Yellen expresses puzzlement at Americans’ dim view on the economy.
The University of Michigan‘s index of consumer sentiment plunged 14 percent this month from May, to its lowest level since the survey began in its current form in the mid 1970s, according to a preliminary report on Friday.
Nearly half of consumers polled (46 percent) attributed their negative views to inflation, up from 38 percent in May, a level that has only been hit once since 1981, during the Great Recession.
A new inflation reading on Friday morning showed that consumer prices jumped 8.6 percent in May from a year ago, higher than expected and the quickest increase since December 1981.
The University of Michigan’s index of consumer sentiment plunged 14 percent this month from May, to its lowest level since the survey began in its current form
Treasury Secretary Janet Yellen expresses puzzlement at Americans’ dim view on the economy, saying they should focus on the hot job market
The UMich survey found that half of all consumers spontaneously mentioned gas during their interviews, compared with 30 percent in May and only 13 percent a year ago.
It comes as gas prices creep toward a $5 per gallon national average. The average stood at $4.99 on Friday, up 14 percent from last month and a 62 percent increase from a year ago, according to AAA.
Consumers expect gas prices to continue to rise a median of 25 cents over the next year, more than double the May reading and the second highest since 2015, the UMich survey found.
In addition, a majority of consumers spontaneously mentioned supply shortages for the ninth consecutive month.
Supply chain issues have caused intermittent shortages of all kinds of goods for much of the past year, and the crisis shortage of baby formula following a key plant’s shutdown has only highlighted the issue.
Survey Director Joanne Hsu said that the year-ahead outlook in business conditions showed the sharpest plunge, dropping 24 percent from May.
Consumers’ assessments of their personal financial situation worsened about 20 percent.
An index of expectations for real income during the next year has plunged
Consumer expectations for inflation over the next year continued to rise
Consumer sentiment is significant because much of the US economy is driven by consumer spending, and negative outlook can spur families to slash their discretionary spending.
In an interview on Thursday, Treasury Secretary Yellen reacted to other recent surveys finding that consumer sentiment is abysmal.
‘When you look at opinion polls, when you see what households have to say, it is amazing how pessimistic they are given that we have about the strongest labor market we’ve had in the entire postwar period,’ Yellen told the New York Times DealBook conference.
However, she acknowledged that ‘inflation is clearly a problem,’ and that gas prices in particular were weighing on sentiment.
‘If you look at surveys, for example the U Michigan survey of consumer expectations, inflation expectations are driven by gas prices, at least at the household level. That is what people see,’ said Yellen.
Yellen said that the pandemic had driven some oil firms out of business as demand plunged, and blamed current high prices on Russia’s invasion of Ukraine further reducing supplies just as demand surges.
Andrew Ross Sorkin and Janet Yellen speak onstage at The New York Times DealBook/DC policy forum on June 9, 2022 in Washington, DC
Yellen acknowledged that ‘inflation is clearly a problem,’ and that gas prices in particular were weighing on sentiment. Pictured: Gas prices in McLean, Virginia on Friday
‘And the truth is, President Biden has done I think what he can do about that,’ she said. ‘But it’s unlikely that oil — that gas prices are going to fall any time soon.’
The Labor Department’s report on Friday showed that the consumer price index jumped 1 percent in May from the prior month, for a 12-month increase of 8.6 percent — topping the recent peak seen in March and hitting its highest level since December 1981.
Biden previously claimed that inflation had peaked as far back as December, and tried to strike a hopeful note in more recent months, but his reaction to the May figure struck a more somber tone, while still blaming Vladimir Putin and Republicans in Congress.
‘Today’s report underscores why I have made fighting inflation my top economic priority,’ Biden said in a statement, conceding that ‘it is not coming down as sharply and as quickly as we must see.’
The new figures released on Friday suggested that the Federal Reserve could continue with its rapid interest rate hikes to combat inflation, and markets reacted swiftly, with the Dow shedding more than 700 points in early trading.
The annual increase, driven by soaring food and energy prices, was hotter than economists had expected, and also marked the strongest signal yet that inflation has not yet peaked.
Inflation has emerged as a key threat to Biden and congressional Democrats in the midterms, and on Friday Biden plans to speak at the Port of Los Angeles to highlight his efforts to relieve supply chain chaos that contributed to rising prices.