Alan's Alert 6-11-2021

 

By Alan Baerlocher

The University of Michigan puts together a survey of consumer sentiment on a monthly basis but they will also put out a preliminary survey around the middle of the month to prepare investors for what their report will reveal. Consumer sentiment can, sometimes, tip us off to the beginning of a recession. Here’s the chart:

You can see the recessions in the gray shaded area. Consumer sentiment usually takes a dive right before the economy hits the brakes. There is no one chart that will warn us of an impending recession. You need to be able to view the economy as a whole, but when consumers lose confidence, bad things happen.

The preliminary survey was posted this morning and the results were unsurprising:

The University of Michigan's consumer sentiment for the US increased to 86.4 in June of 2021 from 82.9 in May, beating market forecasts of 84, preliminary estimates showed. Expectations soared (83.8 vs 78.8) and the current conditions gauge also edged up (90.6 vs 89.4). Meanwhile, inflation expectations for the year ahead fell to 4% from 4.6% and the 5-year outlook declined to 2.8% from 3%. 'Stronger growth in the national economy was anticipated, with an all-time record number of consumers anticipating a net decline in unemployment. Rising inflation remained a top concern of consumers, although the expected rate of inflation declined in early June', according to Surveys of Consumers chief economist, Richard Curtin.

None of what Richard Curtin said was groundbreaking. However, an interesting thing happened in the survey that caught my eye and Richard’s attention.

Consumers have become downright demoralized at the prices they are paying for homes, vehicles, and appliances. Richard Curtin goes on to say, “Spontaneous references to market prices for homes, vehicles, and household durables fell to their worst level since the all-time record in November 1974 (see the chart). These unfavorable perceptions of market prices reduced overall buying attitudes for vehicles and homes to their lowest point since 1982. These declines were especially sharp among those with incomes in the top third, who account for more than half of the dollar volume of retail sales.”

Soaring prices are frustrating consumers. This could mean they avoid making purchases. This looks terrible. The stimulus giveaways are ending and consumers will have to live within their means. This means that prices will have to come down or fewer goods could be sold. These scenarios do not bode well for the economy. We could be staring stagflation directly in the face. This will be something to keep a close eye on.

But I do have good news

Next week is going to be a big one. We’ve got the producer price index, retail sales, and manufacturing reports coming out on Tuesday, as well as the FOMC meeting notes on Wednesday.