The final estimate for consumer sentiment in February came in slightly higher than the advance estimate, rising to 62.8 from 61.7 previously, yet remaining at a decade low.
Concerns over elevated inflation, rising interest rates and higher gas prices all took a toll on confidence, according to a new survey from the University of Michigan on Friday.
Oil and gas prices have climbed rapidly since January on the expectations for a conflict in Ukraine. The survey was taken before the invasion began.
Compared to January’s reading, almost all subcomponents of the sentiment index worsened in February.
Even with multiple interest rate hikes in March and April, inflation will remain elevated by historical standards. We should expect sentiment to remain subdued for several months.
Still, inflation expectations are not running out of control. The 12-month expectation stayed flat in February, while the 5- to 10-year expectation fell by 0.1 percentage point to 3.0%. Both series are included in the Federal Reserve’s long-term inflation expectations index.
Durable goods orders
Data on durable goods orders for January also came in on Friday from the Commerce Department with the top-line orders rising 1.6% on the month, the fourth straight month of increases.
Excluding transportation and defense, new core orders for durable goods had a 1.6% increase, while orders for core capital goods—a proxy for future private investment—had a 0.9% increase in January.
Strong investment spending was also reflected by shipments of core capital goods, which had a 1.9% increase on the month and continued its string of gains dating to last March.
Such a robust level of capital expenditures, which will feed into the private investment component of gross domestic product this quarter, showed how strong businesses have been.
The desire to invest more in machinery and equipment is not only born out of historically high corporate profits but also born out of necessity as labor and materials shortages persist.
The number of unfilled orders continued to rise in January as demand stayed solid, registering a 0.9% increase on the month.
The takeaway
Dampened consumer sentiment has not caused spending to slow down significantly as growth continues to outpace inflation. The detachment of sentiment from such a strong growth rate, however, should be addressed by the government in a quicker fashion.
The underlying boom in private investment will play a crucial role in boosting productivity, and ultimately help to ease inflation and income gains.
