How freaked out are consumers these days?
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Some new numbers came in Friday about how the average American consumer is feeling. Short answer: not as good as a month ago.
Consumer sentiment fell in March for the first time in four months, according to the University of Michigan’s consumer survey. At the same time inflation expectations also fell, which is good news for Federal Reserve Chair Jay Powell.
However, 85% of the surveys that produced those findings took place before the Silicon Valley Bank implosion. Regardless, the average American consumer is probably not feeling all that great about the U.S. financial system right now.
But what’s really bumming them out? Their grocery bills.
“Inflation is 100% more important than financial turbulence at this time,” said Joanne Hsu, who runs the University of Michigan’s consumer surveys. She said all the headlines about bank rescues and bailouts didn’t seem to shake consumers much.
“If we look to the Great Financial Crisis, consumer sentiment didn’t really move a whole lot with respect to bank failures,” she said. “They’re paying much closer attention to other developments in the economy … unemployment rates and incomes.”
Of course, the bank failures of ‘08 and ‘09 led to higher unemployment and lower incomes. But expecting American consumers to start spending less because of Great Recession deja vu is pretty unrealistic.
“Americans famously sort of have short-term memories,” said Chris Jackson with the polling firm Ipsos. “They tend not to be a people that are terribly fixated on actual events in the past.”
There has been some consumer polling since SVB collapsed. Morning Consult economist John Leer said the early data suggests consumers are mostly unfazed.
“I think to some extent that’s a testament to what the U.S. government has done in insuring deposits,” he said.
Granted, the big reason for measuring consumer sentiment in the first place is to anticipate how consumers will spend their money. But for most of 2022, consumer sentiment was pretty bad, and our spending was still significantly high.
Leer said he does expect spending to drop this year, but not because of banking anxiety.
“Consumers have largely eaten into and eroded most of the savings they built up over the pandemic,” he said.
He added that as long as Silicon Valley Bank’s troubles are relatively contained, consumers will be far more sensitive to the price of gas than the price of credit default swaps.
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