The University of Michigan’s measure of Consumer Sentiment declined slightly in January’s preliminary reading to reach the second lowest level of the past decade. Growing concerns about high and rising inflation has been the primary reason for depressed Consumer Sentiment, with it weighing especially heavily on Future Expectations. Even though consumers are benefitting from rising wages in today’s tight labor market, future real income expectations have fallen significantly as they expect inflation to outpace their income gains (bottom graph). This dynamic risks the possibility of lower consumer spending in the months ahead.
