Consumer sentiment slid further in March, falling by 3.1 points from February amid spikes in oil and gasoline prices. The University of Michigan sentiment gauge dropped to 59.7, an 11-year low, according to data released Friday.
The decline was only slightly lower than our forecast of a 3.2-point decrease in sentiment as oil prices soared almost 40% in the past two weeks amid geopolitical tensions.
Oil prices, though, have fallen significantly, from $123 to $106. But that decline was not included in the most recent consumer survey.
The sentiment index often follows changes in oil and gasoline prices. As more Americans have felt the pain at the gas pumps, sentiment continued to deteriorate for the third month in a row.
Skyrocketing energy and commodity prices also sent inflation expectations for the next 12 months soaring, to 5.4% from 4.9% in February. Consumers are expecting higher inflation but only temporarily as the 5- to 10-year inflation expectations remain anchored at 3%.
One interesting component of the survey concerns how consumers feel about retiring. That number dropped to its lowest point since 2016 as higher prices ate into savings and retirement funds. That will most likely give some of the millions of recent early retirees a reason to return to the labor force.
Despite lower consumer sentiment, spending intentions improved slightly for major household items and vehicles in early March, while buying a house seemed less attractive.
But the big picture remained unchanged: Inflation and supply chain issues continued to cause spending intentions for home and vehicles to decline, falling to a four-decade low.
The takeaway
We should expect a modest improvement in consumer sentiment in the final report for the second half of the month if oil prices continue to fall, and if uncertainty, as captured in the VIX index, continues to decline from its peak this week.
If the energy and commodity shocks prolong, such a deterioration in sentiment will translate into lower spending in the coming months.
