Consumer Sentiment Dips in January 2022

The University of Michigan Consumer Sentiment Index (MCSI) has recorded a dip of 2.5% in early January 2022 from its level in December 2021, according to preliminary results released on Jan. 14, 2022. The MCSI now stands at its second-lowest level in a decade, the low having been recorded two months prior, in November 2021.

At a preliminary value of 68.8 in January 2022, the MCSI is 2.5% below its reading of 70.6 in December 2021 and 12.9% under its value of 79.0 one year ago, in January 2021. The decade-long low was 67.4, recorded in November 2021.

Downward Trend in Consumer Sentiment

The MCSI has had an average value of only 70.3 in the past six months. By comparison, it averaged 82.9 in the first six months of 2021. The current reading of 68.8 is thus 2.1% and 17.0% below these respective averages.

Top Concern: Inflation

The delta and omicron variants of COVID-19 have been factors in this downward shift in the MCSI, but accelerating inflation has been another key contributor.

About 75% of survey respondents in early January 2022 ranked inflation as a more serious problem than unemployment. Given that inflation's impact tends to be regressive, having a greater negative effect on lower-income consumers, the MCSI fell by 9.4% among households with total incomes below $100,000 in early January 2022 but rose by 5.7% among households with higher incomes.

Confidence in Government Lowest Since 2014

The same dichotomy in sentiment across the income divide was observed regarding prospects for the national economy. Lower-income households are more pessimistic, while higher-income households are more optimistic.

However, even among those who are more optimistic, they are more likely to expect bad rather than good economic times in the year ahead. Confidence in government economic policies is at its lowest level since 2014.

Deteriorating Personal Finances

Among respondents, 33% reported being worse off financially than a year earlier, the worst reading since 2014. The previous worst reading was 32% in April 2020, amid the height of pandemic-related lockdowns and shutdowns.

Respondent households with incomes in the bottom third of the income distribution are twice as likely to report deteriorating personal finances than those in the top third (40% vs. 20%). The erosion of living standards by inflation was the main explanation given by these respondents.

Additionally, almost half of all respondents (48%) expect that the inflation rate will exceed increases in their income. Only 17% anticipate that their real income (i.e., adjusted for inflation) will rise in 2022.

Related Indexes Are Down

The MCSI preliminary report for January 2022 also included Michigan's Current Economic Conditions Index and Index of Consumer Expectations. The Current Economic Conditions Index was down by 1.3% from December 2021 and down by 15.6% from January 2021. The Index of Consumer Expectation declined by 3.5% from December and by 10.9% from the previous January.