UoM Consumer Sentiment Index Drops to a 10-year Low on Inflation Surge

Snapshot

The Preliminary University of Michigan (UoM) Consumer Sentiment Index for the U.S. declined to its lowest level in a decade after surging U.S. inflation numbers were released earlier this week. 

The index’s preliminary reading showed it had actually declined significantly to the 66.8 level versus an expected higher reading of 72.5. The previous release showed the index at 71.7, which was revised slightly upward from 71.4. 

The most recent decline in the index continues its recent downtrend, sending it to the lowest level the closely watched indicator had seen since November of 2011. The disappointing result was largely attributed to surging inflation in the wake of the COVID-19 pandemic, which threatens current living standards in U.S. households. 

The U.S. Dollar Index (DXY) was trading at 95.21 just before the release, but then fell sharply to the day’s low of 95.05 shortly after the forex market reacted in disappointment to the worse-than-expected number. This news seemed to put a damper on the U.S. dollar’s recent rally that began early on Tuesday from the 93.89 level. 

12-month graph of the University of Michigan Consumer Sentiment index. Source: Tradingeconomics.com 

Detail

The unexpected and substantial decline in the UoM sentiment index this month reflects the U.S. public’s concerns about rising inflation. It also shows consumers’ overall lack of confidence that policymakers are taking appropriate measures to stem inflationary pressures and mitigate their depreciatory effects on the U.S. currency and economy.

Financial confidence among consumers is considered a leading indicator of their spending, which represents the majority of economic activity overall and thus can influence forex rates. 

The University of Michigan (UoM) releases two versions of this economic indicator 14 days apart that are known as the Preliminary and Revised UoM Consumer Sentiment Indexes. Since the Preliminary release comes out earlier, it tends to have the greatest market impact.  

Both indexes are derived from a survey of about 500 consumers that asks them to rate the level of current and future conditions in the U.S. economy relative to each other. 

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