Just three weeks ago, I posted a blog titled A Cloudy Crystal Ball that raised a caution flag based on four consecutive months of declining consumer confidence. Well, the newest report, which was released on April 11th, was 12% lower than the February number, and the second lowest reading since the data was first collected in 1952. Sentiment has now declined by 30% since December and the current reading is below the level that prevailed during the Great Financial Crisis.
One component of the University of Michigan Survey is respondents’ expectations for inflation during the next year. That number rose from 5% last month to 6.7%, and the current reading is the highest since 1981.
Declining consumer sentiment is of concern because the consumer represents about 70% of the economy which means that any pullback in spending could well lead to a recession. However, sentiment surveys are what economists call “soft data” meaning that actual consumer behavior may not correspond to the sentiments respondents express to the survey takers. And, at least up to this point, the “hard” data on the actual economy remains pretty firm.
Where does all of this leave us? For many years, I have cautioned against significantly adjusting one’s investment strategy in response to headlines. I can’t think of a better example of the difficulty in making accurate forecasts than the current period. We are overwhelmed by all of the “noise” and shaken by the incredible volatility of both politics and the markets themselves. So, turn off your devices, don’t make significant changes in your portfolio, and try to enjoy the beauty of spring!