Last Friday, the University of Michigan released its Consumer Sentiment bi-monthly report. The report is based on a survey conducted by Consumer Survey Center every two weeks contacting 600 households with 420 responding for this report. The preliminary results indicated a sharp decline to a six-month low of sentiment to 57.7.
Joanne Hsu, Directly of Survey Consumers, provided this analysis:
"While current incoming macroeconomic data show no sign of recession, consumers’ worries about the economy escalated in May alongside the proliferation of negative news about the economy, including the debt crisis standoff".
Current sentiment is well below the low reached in 2020 and at the lowest level in ten years. Looking at the past 25 years of this indicator, the sentiment of consumers as an indicator by this report is so negative the index is lower than the lows reached in the devastating 2008 Housing Crisis that nearly bankrupted the financial industry. It’s a wonder why consumers are so depressed during a time when more people working in the history of this country with millions having fixed-rate mortgages below 4% interest rates.
I am certain the members of the Federal Open Market Committee are secretly pleased with this report. Their goal well known by all is to slow down the economy to reduce inflation. Consumers represent 66% of our economy and if consumers are nervous then maybe they will not spend so much. Less spending by consumers reduces demand which increases supplies resulting in reduced prices.
So far it appears the best-case scenario for the economy is coming to fruition. The Federal Reserve raised the discount rate ten consecutive times to the current 5.0 %– 5.25% and the prime lending rate to 8.0% without driving the economy into a recession. All last year analysts feared if the Fed’s raised rates as they projected then the economy is doomed. The Federal Reserve appeared to have a better understanding of the US economy than Goldman Sachs who had very dire forecasts for 2023.
Fortunately, consumers and businesses are doing well as indicated by the unemployment rate dropping in May to the lowest since 1969. Now it appears the Federal Reserve is done raising rates and will be watching to see how the economy assimilates the new interest rate environment to determine if any adjustments are required.
WHAT DOES THIS MEAN TO ME?
We maintain our favorable view of the US economy and stock market. The S&P 500 has maintained its positive upward trend since October 14, now above its 20, 50, and 200 Day Moving Averages.
The S&P 500 has steadily improved since reaching the year-to-date bottom on March 13. This low was above the previous low reached on December 28 and a positive sign that sellers didn’t drive the index to new lows. More confirmation of the positive upward trend will be when the index rallies above the February 2-year high. Currently, the index is 1.5% below the year high.
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