Consumer Sentiment: Harbinger for Recession or a Reflection of Pain at the Pump?

June 01, 2022 | Chad Sheaffer, CFA, CAIA, Senior Research Analyst

Two-line chart showing U.S. consumer sentiment and average gas price per gallon. Chart subtitle: Consumer sentiment fell in May to the lowest level in more than 10 years. Chart visual description: Chart has two y-axes. Left y-axis shows University of Michigan Consumer Sentiment Index Level, ranging from 50 to 120, with corresponding line in light purple. Right y-axis shows U.S. National Avg. Retail Gas Price, from $5.00 to $0 (inverted), with corresponding line in slate. X-axis shows years from 1990 through May 31, 2022 (though labels only show through 2021) in two-year increments. Recession periods are shaded in light green. Chart data description: As described in the write-up, since its inception in 1978, the consumer sentiment index has posted a reading below 60 in only three other distinct periods: the late stages of the stagflationary environment in 1980, the Global Financial Crisis in 2008-2009, and a brief period in 2011 when S&P Global Ratings downgraded U.S. Treasury debt. The May reading came in at 58.4, the lowest reading since August 2011. The gasoline price line very closely parallels the consumer sentiment index line across all time shown, with the exception of the Global Financial Crisis, when gasoline prices decreased along with consumer sentiment. May 2022’s average price per gallon was $4.44. Chart sources: University of Michigan, U.S. Energy Information Administration, Bloomberg. End chart description.

U.S. consumer sentiment has become increasingly pessimistic in 2022 as a plethora of macro headwinds have created uncertainty. The University of Michigan Consumer Sentiment Index, a key proxy for consumer confidence, fell to 58.4 in May, the lowest reading since August 2011. The survey aggregates consumer views across a range of questions including personal finances, general business conditions, housing market conditions, spending expectations, and outlook. The overall level of the index and the relative change from prior readings provide an indication as to how consumers feel about the current and future U.S. economy. Since its inception in 1978, the survey has posted a reading below 60 in only three other distinct periods: the late stages of the stagflationary environment in 1980, the Global Financial Crisis in 2008–2009, and a brief period in 2011 when S&P Global Ratings downgraded U.S. Treasury debt.

Despite consumer spending comprising the majority of GDP, extremely bearish consumer sentiment has historically been a poor predictor of recession. Survey readings below 60 have coincided with a recession only 33% of the time (two out of six recessions) since 1978. Consumer sentiment surveys seem to be far more indicative of the current consumer experience than the longer-term economic outlook. As seen in this week’s chart, the University of Michigan Consumer Sentiment Index has shown a strong correlation to gasoline prices — a very visible component of inflation for most consumers — especially during periods of rising gas prices. While current sentiment can have a very real impact on economic growth via consumer spending, it is important to consider this metric alongside other economic measures, many of which still show consumer strength. With the market laser-focused on the health of the U.S. consumer and the risk of recession, we will continue to monitor various economic indicators and advise our clients accordingly.

Print PDF > Consumer Sentiment: Harbinger for Recession or a Reflection of Pain at the Pump?

 

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

Chad Sheaffer, CFA, CAIA
Senior Research Analyst

Get to Know Chad

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

Related Content

05.23.2024

A Falling Tide Lowers All Boats

The resilience of the American consumer has been an unanticipated phenomenon in the four years since the outbreak of the…

05.14.2024

The “Fix” Is In!

The strength of the U.S. economy over the last several quarters has surprised many investors, as consensus expectations from the…

05.09.2024

The Emergence of Argentinian Equities

Argentina has faced myriad economic headwinds in recent time, including hyperinflation, currency-related difficulties, and a series of defaults on its…

05.02.2024

Is Bitcoin Fairly Valued?

Despite mixed performance to start 2024, bitcoin finished the first quarter up roughly 68%. Buoyed by a broad weakening of…

04.26.2024

1Q 2024 Market Insights Video

This video is a recording of a live webinar held April 25 by Marquette’s research team analyzing the…

04.25.2024

Mind the Gap

Any ride on the London Tube reminds riders to mind the gap: Beware the space between train car and platform…

More articles

Subscribe to Research Email Alerts

Research Email Alert Subscription

Research alerts keep you updated on our latest research publications. Simply enter your contact information, choose the research alerts you would like to receive and click Subscribe. Alerts will be sent as research is published.

We respect your privacy. We will never share or sell your information.

Thank You

We appreciate your interest in Marquette Associates.

If you have questions or need further information, please contact us directly and we will respond to your inquiry within 24 hours.

Contact Us >