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FROM MOROSE TO DIRE: CONSUMER SENTIMENT HITS ROCK BOTTOM

Friday's modest stock rally belies the wretched outlook of the American consumer.

The University of Michigan's (UMich) second and final stab at May consumer sentiment USUMSF=ECI showed the mood among consumers is a lot more bleak than originally reported.

The index was downwardly revised by 3.4 points to 44.8, the series' lowest reading ever. Economists expected a repeat of the preliminary reading of 48.2.

The mood of the American consumer, burdened with about 70% of the U.S. economy, has deteriorated by 20.8% since the onset of the war with Iran.

Survey participants' assessments of present conditions were lowered by 4.2%, and near-term expectations were cut by 9.1%.

Since the war began, present conditions and expectations have plunged by 19.1% and 22.1%, respectively.

"Consumer sentiment fell for the third straight month as supply disruptions in the Strait of Hormuz continue to boost gasoline prices," writes Joanne Hsu, UMich's director of consumer surveys. "The cost of living continues to be a first-order concern, with 57% of consumers spontaneously mentioning that high prices were eroding their personal finances, up from 50% last month."

"Independents and Republicans saw decreases in sentiment, with both groups reaching their lowest readings of the current presidential administration," Hsu adds.

The inflation expectations element showed respondents now expect annual price growth of 4.8% a year from now. That's hotter than UMich's preliminary take, and 2 full percentage points hotter than the most recent core CPI reading.

Longer-term, consumers expect annual inflation of 3.9% five years from now, a half percentage point hotter than UMich's initial take.

But in a bit of good news, the Conference Board's (CB) Leading Economic Index (LEI) USLEAD=ECI unexpectedly improved by a nominal 0.1% in April, marking a partial rebound from March's 0.6% drop. Consensus called for the index to dip by 0.2%.

The index is an amalgamation of 10 forward-looking economic indicators, including initial jobless claims, ISM new orders, building permits, yield spreads and S&P 500 price performance, among others.

"The US LEI increased slightly in April, driven mainly by a rebound in stock prices and an increase in building permits,” says Justyna Zabinska-La Monica, CB's senior manager of Business Cycle Indicators. “The LEI’s six- and twelve-month growth rates were negative, signaling fragile economic conditions ahead."

Consumer expectations, according to UMich, would agree:

(Stephen Culp)

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