The University of Michigan Consumer Sentiment Index (MCSI) began March 2022 at 59.7, down by 3.2% from the previous decade-long low of 61.7 recorded in the first half of January, according to preliminary results released on March 11, 2022. A key factor was falling real incomes, recently accelerated by rising fuel prices as a result of Russia's war on Ukraine.
The preliminary value of 59.7 for March 2022 puts the MCSI 4.9% below its final reading of 62.8 in February 2022 and 29.7% under its value of 84.9 one year ago in March 2021. The year-ahead expected inflation rate rose to its highest level since 1981, and expected gas prices recorded their largest monthly jump in decades. Personal finances were expected to worsen in the year ahead by the largest proportion of respondents since the survey started in the mid-1940s.
- The Michigan Consumer Sentiment Index (MCSI) sank to a new decade-long low in early March 2022.
- Falling real incomes and surging fuel prices were key drivers of consumer pessimism.
- The share of respondents expecting worse personal finances a year ahead was the largest since the survey began in the mid-1940s.
- Respondents who mentioned Russia's war on Ukraine were more pessimistic than the average.
- Those who mentioned Ukraine and had high inflation expectations were the gloomiest.
Consumers' Negative View of the Economy
Survey respondents held very negative expectations about the economy, the lone exception being the job market. They were slightly more likely to expect that the unemployment rate will fall rather than rise.
Richard Curtin, the chief economist for the University of Michigan Surveys of Consumers, commented: "This underlying strength in jobs comes at the cost of pushing inflation even higher due to unrelenting pressures on aggregate demand and supply lines. The persistent strength in demand was a critical factor that shaped the last inflationary age from 1965 to 1982, with stagflation peaking only near its end. Current expectations are consistent with heightened pressures on wages to meet the continued growth in demand."
Curtin continued: "Like the game of musical chairs, everyone continues racing around the circle of rising prices and higher wages. Although everyone knows the game will end, everyone still wants to obtain the highest income possible before they exit. The game is moderated by fiscal and monetary policies, which now favor increased federal spending and full employment over price stability, enabling ever more rounds of the game."
Biggest Uncertainties: Inflation and Ukraine
The largest source of uncertainty among respondents is inflation, along with the potential impact of Russia's war on Ukraine. In the preliminary March 2022 survey, 24% of all respondents mentioned, entirely on their own initiative without prompting, Russia's invasion of Ukraine in response to questions about the economic outlook.
Spontaneously mentioning Russia's war on Ukraine was associated with a drop of 13.2 index points in the Index of Consumer Expectations across all households. The impact was much larger for those respondents who held higher inflation expectations. Among them, the difference was 33.5 index points on the Expectations Index for those who expected inflation to be under 5% compared with those who expected it to be over 5%.
Related Indexes Continue Downtrend
The MCSI preliminary report for March 2022 also included Michigan's Current Economic Conditions Index and Index of Consumer Expectations. In the preliminary March 2022 report, the Current Economic Conditions Index was down by 0.6% from February 2022 and down by 27.1% from March 2021. The Index of Consumer Expectations declined by 8.4% from February and by 31.7% from the previous March.