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Consumer Sentiment Reduced by 4.8% to 67.2 in January

The University of Michigan has published a Survey of Consumers it carried out and it revealed that consumer sentiment has had a setback by 4.8% to settle at 67.2 in the opening month of the year. This latest decline is the lowest point of the Consumer Sentiment Index since November 2011. The figures provided also add up to a 14.9% year-on-year decline.

Analyst’s Views

Richard Curtin who is the Chief Economist of the Survey of Consumers said that consumer sentiments dropped all through January, causing a total loss of 4.8% which made the percentage fall to its lowest point since November 2011. He said further that the present dwindle is a result of two steep declines differentiated by a short interlude of high optimism. The first sharp decline happened in two months. It was a 28.9% dip in market optimism from February down to April 2020 caused by the economic shutdown.

Confidence had a strong bounce-back towards the end of 2020, increasing to 23% as of April 2021. The gains were however recoiled in the course of the last 9 months as the Sentiment index fell by 23.9%.

Analysts say the COVID-19 Omicron and Delta variants were mainly responsible for the decline but the effect of other factors cannot be overlooked. Although some of these other factors may have first been triggered by COVID, they have become recognized as independent factors determining consumer sentiments in themselves.

As the essential working-class and supply chains network have caused the first increments in wages and prices, the wage-to-price spiral that followed I am no more attached to the precursor situations. Spending in individual households had peaked and was supported by a fast rate of increasing stock and housing prices that will possibly turn a negative trend within a year.

Government Mistrust

On a larger scale, people are losing confidence in government economic plans and policies, and it is at its weakest point since 2014. The political situation in Eastern Europe may also add to COVID’s effects and economic relations with other countries.

The aim of the Federal Reserve for coming up with a monetary policy to increase interest rates by March is to rein in the fledgling inflation trying to go out of control, and the issues of reducing incomes. Nevertheless, consumers have the potential to misconstrue it as a policy to slow down the economy.

Curtin said further that the current trouble is that consumers generally may overreact to government policies as a result of uncertain outcomes surrounding the pandemic and political risks across the world. He mentioned that policy communications must ensure that consumers understand the economic situation and balances involved.

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