Consumer Sentiment Slumps in January to Lowest Level in More Than 10 Years on Pandemic, Inflation Woes

Consumer sentiment in January fell to its lowest level since November 2011 amid continued inflation and pandemic concerns, as well as growing macroeconomic uncertainty, the University of Michigan said Friday.

The sentiment index for this month dropped to 67.2 from 70.6 in December, according to a survey. The consensus of analysts on Econoday was for 68.6. The latest measure trailed the January 2021 reading by almost 15%.

"The delta and omicron variants were largely responsible, but other factors, some of which were initially triggered by COVID, have become independent forces shaping sentiment," Surveys of Consumers Chief Economist Richard Curtin said.

Survey data showed the current economic conditions gauge fell to 72 in January from 74.2, while the expectations index slid to 64.1 from 68.3 last month. The readings for January 2021 were 86.7 and 74, respectively.

"While supply chains and essential workers have sparked the initial increases in prices and wages, a wage-price spiral that has subsequently developed is no longer tied to those precipitating conditions," Curtin said.

He added that the overall confidence in the government's economic policies is at its lowest level since 2014, with the "active confrontations with other countries" expected to worsen the situation.

The Federal Reserve announced an end to its pandemic-era stimulus program late last year and hinted at its first interest rate increase since late 2018 earlier this week.

Curtin said the Fed's policy moves to slow the economy could be misinterpreted by consumers as "part of the problem rather than part of the solution," prompting them to "overreact to these tiny nudges."

"Clear policy communication is insufficient if it does not also advance consumers' understanding of the economic tradeoffs involved and their plans to actively alleviate any undue harm," he said.