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In Latest Sentiment Poll, Buying Conditions Are the Worst in Decades

In the University of Michigan sentiment pool, consumers have soured on buying homes, cars, and durable goods.
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Not Optimistic Consumer Sentiment

Worst Buying Conditions in Decades 

Bloomberg reports Americans See Worst Buying Conditions in Decades on High Prices

The University of Michigan’s preliminary sentiment index edged up to 71 from 70.3 in August, data released Friday showed. The figure trailed the median estimate of 72 in a Bloomberg survey of economists.

Buying conditions for household durables, homes and motor vehicles all fell to the lowest in decades. The report said the declines were due to complaints about high prices. Consumers expect inflation to rise 4.7% over the coming year, matching the highest since 2008.

The university’s gauge of current conditions fell to 77.1, the lowest since April 2020, from 78.5. A measure of expectations rose to 67.1 from 65.1, according to the survey conducted Aug. 25 to Sept. 12.

Polls Not Surprising 

The polls are not at all surprising and arguably next to useless. Polls do little other than show current conditions visible in other data. 

For example, existing home sales have fallen every month since February. So, yeah, buying conditions are bad. What did the poll tell us we already did not know?

And if consumers are not buying homes, they are not buying appliances, furniture, and new cabinets to go in the homes.

Expectations are meaningless in both direction. If conditions improve, so will buying, regardless of what consumers currently think about the future. 

If conditions get worse so will real (inflation-adjusted) spending and home buying. 

At least the poll makes sense and matches reality. They don't always do so.

Cyclical Components of GDP

Cyclicals such as housing and durable goods are the Most Important Chart in Macro.

Cyclicals including housing and durable goods only constitute ten to fifteen percent of GDP, but the swings account for variations between growth and recession according to Eric Basmajian at EPB Macro.

A Big Housing Bust is the Key to Understanding This Recession

On July 14, I did a follow up on the above idea in A Big Housing Bust is the Key to Understanding This Recession

Don't expect strong consumer spending to save the day.

Factoring in Revisions and Inflation, Retail Sales Remain Very Weak

Real vs Nominal Advance Retail Sales Millions of dollars 2022-08
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The amount of nonsense about strong retail spending recently is staggering. It's real (inflation adjusted) spending that drives GDP, not nominal spending.

Real consumer spending peaked in March of 2021 at $236,100 million. It's now $231,138.

Strong consumer spending? Where? 

Real vs Nominal Advance Retail Sales Detail 2022-08

Real spending bottomed in December of 2021 and picked up for the next four months, through April. 

Also, housing remained strong in 2021 and relatively strong in the first quarter of 2022.

That's why I pegged a recession start In May.    

For discussion, please see Factoring in Revisions and Inflation, Retail Sales Remain Very Weak

Polls Tell Us What We Already Knew

Economists depend on consumer sentiment polls. I suggest they would be better advised to understand the data. 

GDPNow Forecast for Q3 Plunges to 0.5 Percent on Weak Consumer Spending 

Meanwhile, please note GDPNow Forecast for Q3 Plunges to 0.5 Percent on Weak Consumer Spending

With housing in the gutter and poised to get worse, I expect a third quarter of negative GDP. But hey, let's dare not call that a recession.

This post originated at MishTalk.Com

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