If you ask buyers if it's a good time to buy things or if the saving is doing well, put yourself covered. The surveys suggest that even if the United States, the euro area and the United Kingdom are close to full employment and that real income is increasing, consumers are miserable.
The University of Michigan Index of consumer feeling was 52.2 in April, having been briefly in 2022 and 1980. Economic optimism index Ipsos Mori fell to its lowest level since the start of the survey in 1978. Although the euro zone Consumer confidence index These depths are not entirely in plumbing, it also dropped strongly last month with deterioration in the four parts of the index.
The indicators are considered to be a rapid overview of future expenditure and economic health, because household consumption is the largest component of GDP.
But what happens if something has happened and these investigations no longer provide the information they have done in the past?
The president of the federal reserve Jay Powell thinks that something fish happens. “There have been many times when people say very well-closed things about the economy, then go out and buy a new car,” he said after the Fed political meeting in March. The feeling has plunged more since then.
What's going on in the United States?
The graph below shows the level of the consumer's feeling indicator of Michigan and the annual growth of consumption expenditure since 1985. The levels are expressed in standard deviations from the average so that the two indicators can be indicated on a graph with a single Y axis. This data transformation shows whether the indicator is higher or lower than its long -term average and the extent of any deviation.
The graph shows that the relationship between consumers' feeling and real growth in private consumption has been broken down. During Donald Trump's first administration, the feeling was generally higher than average, but expenses are not special. However, from the pandemic, the reverse was true – both during the inflationary period of 2021-2222 and now.
In the United States, it is very difficult to say things about the economy without mentioning a table of consumers feeling by political affiliation.
Since 2016, the Republicans report that it is a good time to spend only when their man is in the oval office and vice versa. It cannot therefore be surprising that the data has lost its power as an economic indicator. It now seems to measure the degree of partisanary – and consumers who are originally democratic are really unhappy at the moment.
But it is a very focused vision of the United States of the world. To avoid making the common mistake of thinking of the United States, what is going on in Europe?
Europeans are also miserable and spend
If you look at the equivalent table for the United Kingdom with two different consumer confidence indicators, the same scheme that the United States also emerges. Since COVID-19, even if consumption has not been so strong, the consumer confidence indicator of GFK and the indicator of economic optimism of Ipsos Mori have been much lower. Overall, there was a reasonable adjustment between the data, which was broken down.
In order not to be outdone, the same diagram can be seen in the data in the euro zone. The feeling through the single monetary area is more volatile than consumption. Recently, it was incredibly weak, while the actual expenditure of households has resisted better.
It seems that American political polarization, while clearly knowing the value of feeling indicators, is not the only thing to fear.
A little detection of the Fed
What we really need is to follow the actual expenditure habits of a sample of consumers against feeling of the same sample. This is exactly what some entrepreneurs of the Fed did in a New research project.
They have combined a long -term study on actual expenditure patterns, in which households scan their receipts in an application, with subjective questions about the quantity of income, the spending and the feeling of the respondents have changed in recent years.
As long as households regularly and accurately record their receipts, researchers can examine the growth in individual expenditure and individual inflation rates and compare them with feeling. The results are fascinating.
First, consumers overestimate the inflation they have faced. It is not a surprise, but 24% thought that their inflation rate in the past five years was higher than 40%. In fact, only 1.7% of the sample had such high inflation. Inflation, As I have already documented itMake people crazy about rage.
Second, the feeling was strongly linked to the perception of consumers of their real expenses. Those who seemed to be the least confident about their finances declared that their income had been much slower than their expenses, even if they were often wrong. This weak economic feeling was amplified if they felt that they should take measures to reduce due to inflation.
Third, although households who declared that they were much better off than five years earlier had higher expenses than those who said they were much worse, the differences in the distributions were not important, as shown in the graph below.
In an inflationary environment, economic feeling is therefore probably low and could well disconnect with real expenditure levels. It's not just politics. Consumers around the world are likely to be angry, but could still pass harshly. School indicators may not be very useful as long as inflation memories are fading.
What I read and watched
A graphic that counts
Scott bets Past last Thursday Talk about how two years yield on treasury bills had fallen before him quickly increased by 0.25 percentage points.
“We note that the rates of two years are now lower than Fed Funds rates, so it is a market signal that they think that the Fed should reduce (prices),” said Bessent.
He is right in his analysis. The problem is that the financial markets were a terrible predictor of the rate of federal funds recently, as shown in the graph below.
Since last year, they expected drops of prices of six quarters in 2025 last September, then in January only one, and now almost four. Market players regularly change your mind and seek signals at the Fed meeting on Wednesday.
