Consumer sentiment falls to lowest level since 2011

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Consumer sentiment falls to lowest level since 2011

The numbers: The University of Michigan s gauge of consumer sentiment fell to an initial February reading of 61.7, from January's January reading of 67.2, the lowest reading since October of 2011.

According to a Wall Street Journal survey, economists were expecting a reading of 67.

Expectations for inflation over the next year rose to 5% from January's expectation of 4.9%, the highest level since July of 2008, while inflation expectations over the next five years were steady at 3.1%.

A consumer's view of current conditions fell to 68.5 in February from 72 in January, while an indicator of expectations fell to 57.4 from 64.1 in the previous month.

With consumer prices rising 7.5% since January, the fastest pace in the last 40 years, Americans are pessimistic about their buying power, meaning healthy wage gains have not kept pace with the rise in cost of living.

Richard Curtin, chief economist of the survey, said February's decline was stunning and that the declines have been driven by weakening personal financial prospects, rising inflation, less confidence in the government's policies and the least favorable long term outlook in a decade. The impact of higher inflation on personal finances was spontaneously cited by one-third of consumers, with more than half of the consumers expecting declines in their inflation adjusted incomes during the year ahead, he said. There was a falling likelihood of stock price increases in 2022, a reason why households have cited rising net household wealth since the pandemic low in May 2020. In a note to clients, Ian Shepherdson, chief economist at Pantheon Macroeconomics, said we had hoped that plummeting Covid cases would offset the hit from rising gas prices and the wobbling Nasdaq.

Spending and sentiment are not the same, especially when households are sitting on trillions of dollars of pandemic savings, but it is hard to be very positive about the near-term outlook for retail sales when sentiment has fallen so far, he said.

Market reaction: Stocks were on the rise Friday morning with the Dow Jones Industrial Average DJIA and the S&P 500 index SPX on the rise.