Merk Investments: June UMICH Consumer Sentiment
The preliminary estimate of consumer confidence by the University of Michigan for the month of June saw consumer confidence fall to its lowest level since June of 1980. The headline declined to 56.7, just above our forecast of 56.1. The economic outlook declined to 49.0 and the economic conditions subcomponent dropped to 68.7. Without a doubt this is some of the gloomiest consumer confidence data that one can expect to see. However, given the sharp escalation in the cost of domestic gasoline and the rising cost of making ends meet for median households, not too surprising. The one-year estimate of inflation expectations came in at 5.1% and the five-year arrived at 3.4%.
The more important narrative on from a macro perspective that one can take from the UMICH consumer sentiment study is that inflation expectations on the part of the public provide a counterpoint to the modest rise in core inflation that the market observed in the May CPI. Inflation expectations are now being driven by the rise in headline prices and both the pessimistic consumer sentiment readings and the elevated level of one year and five year pricing expectations by the public provide a fairly compelling case that inflation expectations are in the process of becoming unmoored. The Fed is now in the most difficult position it has been in since the Volker era. The central bank must now consider that it may have to risk triggering an outright recession by embarking on a rate hike campaign to beat back inflation expectations and the rising prices that are reducing the purchasing power and standard of living of the consumer.
Joseph Brusuelas
Merk Investments
Chief Economist/VP Global Strategy
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