University Of Michigan Revises Consumer Confidence Index Lower For March; Long-Term Inflation Expectations Remain High

The University of Michigan Consumer Confidence Index was revised downward from an original estimate of 63.2 to 62 points in March on Friday — down by 5 points or 8.8% from February. One broad takeaway: Sentiment among U.S. consumers has dropped for the first time in four months, but continues to remain 4.4% higher than a year earlier. 

Market Reaction: The SPDR S&P 500 ETF Trust SPY, which tracks the S&P 500 index, is trading 0.55% higher Friday morning in the wake of the consumer confidence index and personal consumption expenditures economic data points. 

The yield on the 10-year benchmark Treasury bond went down by 3 basis points to 3.55% Friday morning. 

The latest CME Group FedWatch Tool shows the market is split 50-50 between a rate hike and a rate hold at the next FOMC meeting in May.

Highlights From U-M Report: All five subcomponents of the index decreased in March, led by a substantial deterioration in consumer views of business conditions.

According to Surveys of Consumers Director Joanne Hsu, "turmoil in the banking sector had limited impact on consumer sentiment, which was already exhibiting downward momentum prior to the collapse of Silicon Valley Bank."

Read also: Janet Yellen Urges Additional Banking Sector Reforms To Ensure Financial Stability

Inflation expectations for the coming year decreased from 4.1% in February to 3.6% in March, the lowest figure since April 2021, but remain significantly above the 2.3%-3% range observed in the two years preceding the pandemic, according to U-M.

Long-run inflation expectations were 2.9% for the fourth month in a row, and have remained within the tight 2.9%-3.1% range for 19 of the previous 20 months. 

Benzinga's Take: A decline in consumer confidence indicates the economy is in a late-cycle phase and may foreshadow a slowdown.

High interest rates are beginning to erode consumer morale, indicating the lagged effects of monetary policy are now starting to weigh on the real economy. 

Stickier expectations about future inflation make things more complicated, as elevated interest rates may be deemed necessary by the Fed for a long time even if the economy slows down or has a soft landing.

Read next: Fed's Preferred Inflation Measure Comes In Cooler Than Expected As Banking Crisis Complicates Powell's Plan

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