Consumer sentiment continued its downward trend, falling 14.4% in June, according to the University of Michigan Surveys of Consumers.

All components of the index fell this month, with the steepest declines in the year-ahead outlook for the economy, down 24% from May, and consumers’ assessments of their personal financial situation, which worsened about 20%, said U-M economist Joanne Hsu, director of the surveys.

The June consumer sentiment index reading was an all-time low for the survey, comparable to the trough reached during the 1980 recession.

“While consumers still appear relatively optimistic about the stability of their incomes, their perceptions of the economy are much more strongly influenced by concerns over inflation,” Hsu said. “As higher prices become harder to avoid, consumers may feel they have no choice but to adjust their spending patterns, whether through substitution of goods or foregoing purchases altogether. The speed and intensity at which these adjustments occur will be critical for the trajectory of the economy.”
Labor market strength supports incomes

In spite of these bleak views overall, over half of consumers expect their incomes to grow over the next year, consistent with continued low unemployment and labor market strength. These anticipated wage gains edged down slightly from 1.8% in May to an average of 1.1% in June.

Consumers under the age of 45 continue to be more upbeat than older consumers, expecting a one-year gain in income of 4.7%. That said, all age groups—including this youngest group—expressed declines in June in how they expect to fare financially in the year ahead, Hsu said. In particular, about 53% of consumers expected their incomes to be outpaced by prices over the next year.
Inflation casts shadow on personal finances

Consumers’ personal outlook was darkened by widespread concerns over inflation, Hsu said. Rising prices were cited as the main factor for declining living standards over the past year by 47% of all households, a share that has only been exceeded once since 1981 during the Great Recession.

Consumers continued to trace their worries to global factors: A majority of consumers spontaneously mentioned supply shortages for the ninth consecutive month (51% in June), though a falling share mentioned Ukraine or Russia. Half of all consumers mentioned gas prices during their interviews, compared with 30% in May and only 13% a year ago. Consumers expected gas prices to continue to rise a median of 25 cents over the next year, more than double the May reading and the second highest since 2015.

Consumer Sentiment Index

The Consumer Sentiment Index fell to 50.0 in the June 2022 survey, down from 58.4 in May and below last June’s 85.5. The Expectations Index fell to 53.8, down from 63.3 in May and below last June’s 88.6. The Current Conditions Index fell to 47.5, down from 55.2 in May and below last June’s 83.5.

The final June reading confirmed the early-June decline in consumer sentiment, settling 0.2 Index points below the preliminary reading and 14.4% below May for the lowest reading on record. Consumers across income, age, education, geographic region, political affiliation, stockholding and homeownership status all posted large declines. About 79% of consumers expected bad times in the year ahead for business conditions, the highest since 2009. Inflation continued to be of paramount concern to consumers; 47% of consumers blamed inflation for eroding their living standards, just one point shy of the all-time high last reached during the Great Recession. Since the preliminary reading, the Federal Reserve raised interest rates by 75 basis points, exceeding the 50 basis point hike that had been previously telegraphed. The final June reading of the median expected year-ahead inflation rate was 5.3%, little changed from mid-month or the preceding four months. In contrast, long run expectations receded from its mid-month reading of 3.3% and settled at 3.1%, back within the 2.9-3.1% range seen in the past 10 months. Consumers also expressed the highest level of uncertainty over long-run inflation since 1991, continuing a sharp increase that began in 2021.