Mr. Market: Cratering Consumer Not Concerning

At 10AM ET we received a set of atrocious Consumer Sentiment readings from the University of Michigan[i].  The preliminary April reading came in at 47.8, well below both March’s 53.3 and the consensus estimate of 52.  Furthermore, 1-Year Inflation Expectations jumped by a full percentage point to 4.8%.  It is very difficult to put a positive spin on either of those statistics, yet stocks managed only a brief pause before resuming their modest advance.

The 47.8 reading for Consumer Sentiment is a record low, taking out the prior level of 50 that was recorded during the inflation spike of June 2022.  Interestingly, both were well below the prior lows set during the Covid era.  As the chart below shows, sentiment has never really recovered from that shock.  Considering that stocks have gained substantially in that period, it seems sensible for markets to pay little attention to it today, even if we are now below 1980’s levels.

Source: University of Michigan

The bump in 1-Year Inflation Expectations was indeed a substantial leap, but well below April 2025’s post-tariff high of 6.5%.  On a long-term basis, however, today’s jump was a mere blip.  Also, bear in mind that while expectations rose a year ago as people were assessing the impact of tariffs, those fears proved unfounded.  Of course, the concerns in 2022, however, largely did come to pass.

Source: University of Michigan

Although this data often reveals divergent views among those with different political leanings, today’s report states that:

Demographic groups across age, income, and political party all posted setbacks in sentiment, as did every component of the index, reflecting the widespread nature of this month’s fall.

Affordability remains a key concern for respondents, which should factor into both parties’ messaging ahead of November’s mid-term elections.  (Remember, IBKR ForecastTrader offers prediction markets on a wide range of primaries and general elections in 2026.)  Even though inflation has cooled substantially since 2022, prices remain high, and they are factoring greatly into people’s perceptions.  I found the following graph to be rather striking:

Source: University of Michigan

Remember, inflation is the rate of change in prices, not the price level itself.  Reduced inflation means that prices are rising more slowly, not that they are falling!

The timing of the survey might be clouding the data, however.  The survey period began on March 24^th and ended on April 6^th, the day before the ceasefire was announced.  Bearing in mind that today’s data was the preliminary survey for April, it will be fascinating to see if the numbers improve markedly when the final survey data is released in two weeks.

Finally, I’ll finish with a graph that we’ve used before, the relationship between UMich 1-Year Inflation Expectations, the price of regular gasoline as measured by AAA, and the CPI index.  I now realize that I failed to mention this morning’s CPI release, where the headline number came in with a stunning 0.9% increase on a month-over-month basis.  That was nonetheless in line with the consensus estimate, and the Core reading came in at 0.2%, better than the 0.3% consensus.  The headline report immediately reflects the higher cost of energy, but there is clearly a lag in how that input feeds through to finished goods. 

Monthly Data, 1-Year UMich Inflation Expectations (yellow, right scale), AAA Regular Gasoline Price (green, right), Annual CPI (magenta, left scale)

Source: Bloomberg

[i] Author note: as a fan of University of Connecticut basketball, my interpretation of these statistics has nothing to do with UMich beating UConn for the NCAA Championship on Monday.