March Consumer Sentiment

March has certainly been a wild month and the University of Michigan’s consumer sentiment gauge paid the price.  After scoring a three year high last month at 77.5, the index plummeted to 67.5, a monumental drop of 10 points.  The sudden disaster in Japan combined with violent unrest in North Africa and the Middle East, delivering a knockout combination.

There are just a few components that make up this index and expectations heads the list.  These fell to the 57.9 level in March.  Current conditions dipped to 82.5, off a bit more than one point.  Significantly, this index is now providing some of the weakest readings we have seen since the last recession officially ended.  Expectations alone have fallen some ten points in the last year, hardly the stuff of which a recovery is made.

Inflation expectations for the next year rose substantially, hitting 4.6% versus the 3.4% estimated rate seen in February.  Five year expectations put the rate at 3.2%, up from 2.9%, a figure which the Federal Reserve will no doubt closely monitor.

Last month we mentioned this indicator seemed to be taking the pulse of two different segments of our population as households earning above $75,000 seemed to feel positive while the rest were measurably less so.  This month’s report underlines that disparity as the number of consumers expecting their income to increase hit a low point we haven’t seen in over fifty years.