The University of Michigan Consumer Sentiment Index (MCSI) fell by a "stunning" 8.2% in early February 2022 from its final level in January 2022, according to preliminary results released on Feb. 11, 2022. This also reflects rapidly deteriorating confidence over the past four weeks. The MCSI has reached its worst level in a decade.
At a preliminary value of 61.7 for February 2022, the MCSI is 8.2% below its final reading of 67.2 in January 2022 and 19.7% under its value of 76.8 one year ago in February 2021. "The recent declines have been driven by weakening personal financial prospects, largely due to rising inflation, less confidence in the government's economic policies, and the least favorable long-term economic outlook in a decade," the report observes.
- The Michigan Consumer Sentiment Index (MCSI) fell yet again in early February 2022.
- The reading was the lowest in a decade.
- Top worries remain rising inflation and weakening personal financial prospects.
- Confidence in government policies continues to erode.
- Those with incomes of $100,000 or more had the biggest declines in sentiment.
Biggest Decline Among High Income Consumers
The report indicates that the overall sharp decline in consumer sentiment recorded in early February 2022 has been driven by an even more dramatic erosion in sentiment among households with incomes of $100,000 or more. The Sentiment Index for this segment of the respondent pool plummeted by 16.1% from January 2022 and by 27.5% from February 2021. As noted above, the declines for the entire respondent sample were 8.2% and 19.7%, respectively.
Top Concern Once Again: Inflation
The negative impact of higher inflation on personal finances was "spontaneously cited" by one-third of all respondents. Almost half of them anticipate that their real incomes (i.e., adjusted for inflation) will fall during the year ahead. Also, respondents are the most pessimistic about the prospects for rising net household wealth since a pandemic low reached in May 2020, largely due to diminishing expectations about stock price increases in 2022.
Implications of the Survey Results
The report indicates that the decline in the MCSI "signals the onset of a sustained downturn in consumer spending." The depth of the spending slump, however, will depend on several other factors that were not present during previous downturns, such as: unspent stimulus funds, "the partisan distortion of expectations" (i.e., sharp differences in sentiment according to political affiliation and outlook), and the pandemic's disruption of spending and work patterns.
The report observes that households have amassed substantial savings and reserve funds as a result of stimulus programs. Additionally, as a result of the pandemic, consumers have been faced with more limited consumption choices, especially in the area of services. This has put some restraints on spending and thus contributed to savings. Therefore, the report concludes, "There may be a lessened need for additional precautionary savings and a greater desire to engage in discretionary spending."
Related Indexes Are Down Again
The MCSI preliminary report for February 2022 also included Michigan's Current Economic Conditions Index and Index of Consumer Expectations, both of which recorded further declines from the final reading in January. The Current Economic Conditions Index was down by 4.9% from January 2022 and down by 20.5% from February 2021. The Index of Consumer Expectations declined by 10.5% from January and by 18.8% from the previous February.