Consumer Sentiment Falls to a Record Low on Inflation Concerns

Summary

• The preliminary University of Michigan Consumer Sentiment Index for April plunged to a record low of 47.6, the lowest level since at least February 1978.
• The collapse in sentiment is directly attributed to soaring inflation, specifically a 21.2% month-over-month spike in gasoline prices in March.
• Consumers' one-year inflation expectation surged to 4.8% from 3.8% the prior month, indicating they are internalizing current price shocks.
• This sentiment level is notably worse than during the COVID-19 lockdowns, raising significant concerns about its potential impact on consumer behavior.
• There is a strong implication that consumers will likely pull back on spending, as high gas prices directly reduce disposable income for other goods.
• Q4 2022 GDP revisions and weaker February spending data already suggest a trend of consumer retrenchment.
• The expectation is that upcoming April economic data, particularly consumer spending figures, will be "kind of ugly" due to this sentiment and price shock.
• The drop was broad-based, with both the current conditions (50.1) and expectations (46.1) sub-indices falling sharply.