Consumer Sentiment Plunges

Tim Iacono

The Reuters/University of Michigan consumer sentiment index registered its biggest decline since the financial crisis began in late-2008, tumbling from a post-recession high of 77.5 in February to 68.2 in the first of two readings for March.

Sharply higher gasoline prices are no doubt weighing on Americans as the price at the pump has risen almost 50 cents per gallon in recent months and more calls of another “oil shock” are heard, the probability of renewed economic weakness steadily increasing.

The expectations index plunged more than 13 points, from 71.6 to just 58.3, while the current conditions index fell from 86.9 to 83.6. Recall that readings much closer to 100 are typical and periods of recession usually see sentiment readings in the 70 range or lower, so, it would appear that many Americans now think that the U.S. economy has taken a dramatic turn for the worse.

Part of that thinking is surely being driven by the expectation of rising consumer prices, the one-year inflation outlook up sharply from 3.4 percent to 4.6 percent. Five-year inflation expectations also rose, up from 2.9 percent to 3.2 percent, all of which will give the Federal Open Market Committee more to talk about when they gather next week since consumer inflation expectations play an important role in their formulation of monetary policy.

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