American economic pessimism hit a new all-time low in June.

The University of Michigan consumer sentiment index fell from 58.4 to 50.2 in an early June reading, according to a Friday report. This reflects the lowest level since regular monthly data collection began in the late 1970s. The print also landed well below the median forecast of 58.1 from economists polled by Bloomberg.

!function(){“use strict”;window.addEventListener(“message”,(function(e){if(void 0![“datawrapper-height”]){var t=document.querySelectorAll(“iframe”);for(var a in[“datawrapper-height”])for(var r=0;r

The decline was fueled by worsening sentiment across the board. The university’s index for current economic conditions deteriorated to 55.4 from 63.3, while the measure of consumer expectations fell to 46.8 from 55.2. Not only are Americans fed up with today’s economy, they don’t have much hope for things to get better.

Forty-six percent of consumers surveyed linked their pessimism to high inflation, Joanne Hsu, director of consumer surveys at the university, said in the report. That’s up from 38% in May and the second-highest share since 1981, when inflation was last so high.

This share will likely be larger in the final reading in June. Data released earlier Friday morning showed an unexpected acceleration in inflation in May for an annual rate of 8.6%. The rise was largely fueled by soaring energy prices, with the cost of gasoline and fuel oil both rising last month. The report belied hopes that inflation peaked in March and signaled that slowing price growth is likely to be more difficult than initially expected.

Americans are not optimistic about gas price relief. Half of consumers surveyed mentioned more expensive gas in university interviews, up from 30% in May and just 13% in June 2021, Hsu said. Respondents also expect prices at the pump to rise about 25 cents per gallon over the next year, doubling the May outlook and the second biggest price increase expected since 2015.

Friday’s report paints a grim picture for the future of the economic recovery. Consumer spending accounts for about 70% of economic activity, making it a crucial ingredient in returning the United States to pre-pandemic health. Still, the continued rise in prices is likely to dampen the spending spree.

The Federal Reserve is also raising interest rates at the fastest pace in 22 years. As borrowing becomes more expensive, buyers tend to slow down their spending and focus more on saving.

The spending environment is rapidly deteriorating and the latest sentiment data only raises more concerns that Americans may soon withdraw the main economic fuel.

“While consumer spending has remained robust so far, the broad deterioration in sentiment could cause them to cut spending and thus slow economic growth,” Hsu said.

About The Author

Related Posts