March Consumer Sentiment Falls for First Time in Four Months But Inflation Expectations Improve | Economy | U.S. News

Consumers turned negative in March even as their expectations for inflation improved, according to the latest monthly survey from the University of Michigan.

The university’s overall consumer sentiment index fell to 63.4 from 67 a month earlier, a 5.4% decline, while the expectations index dipped to 61.5 from 64.7, a 6.1% drop.

However, expectations for inflation a year from now fell to 3.8% from February’s 4.1%.

“Sentiment declines were concentrated among lower-income, less-educated, and younger consumers, as well as consumers with the top tercile of stock holdings,” Joanne Hsu, survey director, said in a statement. “Overall, all components of the index worsened relatively evenly, primarily on the basis of persistently high prices, creating downward momentum for sentiment leading into the financial turmoil that began last week.”

Recent data, including retail sales for February that came in down 0.4% and rising credit card usage, indicates the consumer is feeling the strain of higher interest rates and inflation that, while moderating, is still far above the Federal Reserve’s target level of 2% annually.

The health of the consumer and the economy in general was called into question this week as three banks failed and the U.S. government stepped in with a rescue plan to assure depositors would be made whole. While that initially calmed the markets, the banking sector remains under duress.

A group of banks pledged $30 billion to First Republic, a San Francisco bank that has gotten caught up in the collapse of Silicon Valley Bank a week ago. Signature Bank of New York, lender to the commercial real estate and crypto industries, was shuttered by state regulators on Sunday.

Treasury Secretary Janet Yellen assured Americans that the banking system is “sound” on Thursday when she testified to the Senate Finance Committee. But banks took out $300 billion of loans and other support from the Fed over the past week, suggesting that the situation remains volatile.

One bright spot is that markets have responded to the situation by sending interest rates on government bonds lower. That could mean the Fed will either pause or raise interest rates by only 25 basis points when it meets next week.

“The market response feels more like a crisis response,” says Johan Grahn, Allianz IM head of ETF Strategy. “You start talking a bank crisis and the default button is a flight to safety.”

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