Economic Sentiment Falls Sharply, Following Downturn On Wall Street

Economic sentiment fell sharply over the past two weeks, dropping 4.6 points to 29.6. This is the largest two-week decline in the past year, and the lowest reading since the HPS-CivicScience Economic Sentiment Index (ESI) began measuring public sentiment about the U.S. economy in 2013.

All five of the ESI’s indicators fell over the past two weeks. Confidence in personal finances fell the most—by 8.3 points—marking the first time in four months that the survey did not find it to be the highest indicator.

— Confidence in the overall U.S. economy fell 6.3 points to 25.3.

— Confidence in finding a new job fell 3.6 points to 44.5

— Confidence in buying a new home fell 2.9 points to 18.2.

— Confidence in making a major purchase fell 1.8 points to 17.4.

Weeks of speculation around the Fed’s decision to further tighten U.S. monetary policy by raising interest rates were confirmed last week, when Chair Jerome Powell announced an increase of 0.75%—the highest rate hike in nearly three decades.

The Fed’s decision came on the heels of a May inflation report showing the highest increase in consumer prices since 1981, up 8.6% in the past 12 months. Fuel prices have more than doubled in the past year, rising 106.7%, while food prices have shown a year-over-year price gain of 10.2%. 

Housing costs, which determine around a third of the Consumer Price Index, increased 5.5%, the fastest 12-month increase in 31 years. 

Surging inflation has contributed to a decline in purchasing power, with prices outgrowing incomes by 0.6% compared to April, and real wages declining 3% over the past year.

The ESI’s three-day moving average correlated significantly with stock market performance over the past two weeks. It began this two-week stretch at a high of 33.4 on June 8. It declined steadily to 27.6 on June 18, coinciding with the worst weekly decline of the S&P in two years. The ESI recovered slightly to close out the period at 29.6 on June 21.

The next release of the ESI will be Wednesday, July 6, 2022.

Economic Sentiment Improves After A Six Week Period Of Decline

Economic sentiment recovered slightly over the past two weeks, following six straight weeks of decline. The HPS-CivicScience Economic Sentiment Index (ESI) rose 0.9 points to 34.2, largely driven by confidence in the housing market and the health of the U.S. economy overall.

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While the aggregated index rose, only two of the ESI’s five indicators measuring the public’s sentiment about different areas of the economy increased. Confidence in purchasing a new home rose 3.0 points to 21.1, while confidence in the U.S. economy rose 2.9 points to 31.6. 

— Confidence in making a major purchase remained steady at 19.2.

— Confidence in finding a new job fell 0.2 points to 48.1.

— Confidence in personal finances fell 1.3 points to 50.8.

Confidence in personal finances and finding a new job remained the highest indicators of confidence, continuing a trend of consumers feeling better about their own personal situation compared to the rest of the economy. 

The past two weeks marked a tone shift in public statements from business leaders about the economic outlook for the remainder of 2022. JPMorgan Chase CEO Jamie Dimon said the largest U.S. bank is preparing for an economic “hurricane.” Retail stocks slumped following Target issued a warning that profit margins are likely to further decline due to a supply glut going into the summer. And Tesla CEO Elon Musk said he has a “super bad” feeling about the economy, predicting the electric car company may have to cut 10% of U.S. jobs. 

Despite these gloomy predictions, the U.S. job market has remained strong, with 11.4 job openings as of April 29. Senior economist David Tinsley from the Bank of America Institute said incomes increased by 9.2%, a rate higher than the current inflation of 8.4%. This has largely been attributed to a recovery in service sector jobs, as the U.S. enters its first full summer without COVID restrictions since 2019.

The ESI’s three-day moving average began this two-week stretch at 32.7 on May 25. It hit its two-week high of 36.1 on Sunday, May 29. The moving average settled at a low of 32.9 for June 3 and 4, before rebounding to 35.6 to close out the session on June 7.

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The next release of the ESI will be Wednesday, June 22, 2022.

Confidence In Personal Finances Remains Resilient As Other Indicators Collapse

Economic sentiment decreased once again over the past two weeks, continuing a six-week stretch of decline and dropping below the previous all-time low by a 1.2 point margin. The HPS-CivicScience Economic Sentiment Index (ESI) fell to 33.3, its fifth record low in the last seven readings. Even so, confidence in personal finances rose, demonstrating the continued resilience of that indicator even as other gauges of confidence have fallen.

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This week’s reading featured breaches of record-low consumer confidence nearly across the board. Four of the ESI’s five indicators hit lows not seen since the ESI’s inception in 2013: 

— Confidence in the overall U.S. economy fell 2.9 points to 28.7.

— Confidence in making a major purchase fell 2.2 points to 19.2.

— Confidence in finding a new job fell 1.5 points to 48.3.

— Confidence in purchasing a new home fell 1.2 points to 18.1.

The one indicator that bucked the trend this reading—and has shown resilience across the past twelve months as other indicators declined—is confidence in personal finances. For the entirety of 2022, confidence in personal finances has been the best performing indicator of confidence; this reading, it rose 1.5 points to 52.1

The chart above compares each indicator’s average value over the past 12 months (in blue) to that indicator’s value today (in red). Where indicators such as confidence in the overall economy and confidence in making a major purchase are substantially lower today compared to their 12-month average (lower by 10.2 and 9.8 points, respectively) confidence in personal finances is only 3.1 points off its average value for the year.

The findings align with those of the Fed annual Survey of Household Economics and Decisionmaking, which found 78% of adults said they were either “doing OK or living comfortably.” But just 24% rated the national economic conditions as good or excellent, down from 50% in 2019.

The effect of consumers holding on to their wallets was borne out in retail earnings releases last week. Target and Best Buy reported declines in quarterly sales and cut their annual outlooks as demand for categories like consumer electronics and home appliances remains low.

Employers have been under pressure to attract recent college graduates and maintain remote work flexibility. Despite this, just 20% of workers reported feeling that their job was secure, according to a recent ADP survey. 

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The ESI’s three-day moving average began this two-week stretch at 34.8 on May 11. It hit its two-week high of 35.6 on Wednesday, May 18. The moving average hit a low of 30.7 on May 23, and recovered slightly to 32.1 to close out the session the following day.

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The next release of the ESI will be Wednesday, June 8, 2022.

Economic Sentiment Drops To Another Record Low

Economic sentiment fell over the last two weeks, dropping below the previous all-time low by a 1.3 point margin. From reading to reading, the HPS-CivicScience Economic Sentiment Index (ESI) decreased 1.5 points to 34.5.

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For the second straight time, all but one of the five indicators decreased. Confidence in buying a new home fell 1.4 points to 19.3, a new record low, while confidence in the U.S. economy dropped 2.9 points to an all-time low of 31.6.

— Confidence in finding a new job fell 0.3 points to 49.8.

— Confidence in personal finances fell 2.9 points to 50.6.

The only indicator to improve was confidence in making a major purchase, which rose 0.4 points to 21.4.

Last week, Chairman Jerome Powell announced that the Federal Reserve would hike its benchmark interest rate by 50 basis points in response to inflation and the “hardship it is causing.” Chairman Powell indicated, however, that the Fed is not “actively considering” raising rates by 75 basis points.

This week, the S&P 500 fell below 4,000 for the first time since March of 2021, and the 10-year Treasury yield rose above 3% for the first time since 2018. The tech-heavy Nasdaq is also officially in bear market territory, as stocks like Meta, Alphabet, Amazon, Apple, and Netflix have seen their values fall. 

The Labor Department released its monthly jobs report for April last week, which indicated that while 428,000 net new jobs were added to the economy and unemployment remained at 3.8%, the labor participation rate fell by 0.2 percentage points to 62.2%.

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The ESI’s three-day moving average began this two-week stretch at 35.6 on April 27. It hit its two-week high of 36.0 the following day and its low of 33.1 on May 4. The three-day moving average closed the session at 35.7 on May 10.

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The next release of the ESI will be Wednesday, May 25, 2022.

Economic Sentiment Falters, Driven By Concerns Over Housing Affordability

Economic sentiment fell over the last two weeks, marking the fifth decline out of the last six readings. The HPS-CivicScience Economic Sentiment Index (ESI) decreased 0.7 points to 36.0.

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All but one of the ESI’s five indicators decreased this week. Confidence in buying a new home declined the most, falling 1.7 points to 20.7, a new record low.

— Confidence in making a major purchase fell 1.4 points to 21.0.

— Confidence in finding a new job fell 0.6 points to 50.1.

— Confidence in the U.S. economy fell 0.4 points to 34.5.

The only indicator to improve was confidence in personal finances, which rose 0.4 points to 53.5. 

Last week, Goldman Sachs analysts raised their projected probability of recession to 15% in the next 12 months and 35% within the next 24 months. The heightened risk is attributed to expectations that the Fed will further raise interest rates as a means of reining in inflation and cooling the economy.

New data released this week showed average national home prices reached an all time high in February, increasing 19.8% year over year. Fortune reported last week that homebuyers paid 20% more for a standard 30-year mortgage than homebuyers in January and 38% more than a year ago. 

Homebuyers are flocking to smaller cities with lower costs of living, a sign that housing affordability is becoming a higher priority. The Rapid City, South Dakota metro area ranked highest in the Wall Street Journal’s emerging housing markets index for Q1 2022. 

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The ESI’s three-day moving average began this two-week stretch at 37.9 on April 13. It hit its two-week high of 38.3 on April 17, its low of 33.6 on April 21, and closed the session at 35.2 on April 26.

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The next release of the ESI will be Wednesday, May 11, 2022.