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Consumer sentiment has dipped to the lowest level since the election of President Trump according to today’s University of Michigan consumer sentiment Index.  The index dropped from 98.3 down to 90.7, well below the forecast 95.7.

Key Takeaways

• The drop was led by a pronounced decline in the expectations index.
• The index is now at a two-year low, missing all expectations for January’s reading.
• Prospects for the domestic economy were recorded as notably low, with the government shutdown and trade war weighing heavily on outlooks.

The University of Michigan index released today shows that the government shutdown is marring the outlook of many consumers, as is the ongoing trade war which continues to impact the national and global economies. Consumers also cited lack of clarity surrounding government monetary policies as a cause for concern and negative sentiment.

Given that consumer spending makes up the largest amount of the economy, the pronounced dip in outlook is concerning and may herald reduced consumer activity in the near future.

The sentiment index is being factored in with other similar indicators pointing to an economic slowdown in 2019, such as decline in the housing and manufacturing sectors. The economic outlook is such that the central bank stated that it is willing to be patient and flexible with monetary policy, indicating that upcoming unfavorable economic conditions may warrant a pause in rate hikes to allow the economy some breathing room.

Consumers anticipate price gains to continue as they are, with expectations for next year’s inflation unchanged at 2.7% and the 5 to 10-year inflation rate predicted to be 2.6% by respondents, up 0.01% from the last survey.

Recent economic news has been viewed by survey respondents as the least favorable since late 2011, with negative references to government policy four times as common as positive references.

University of Michigan & Thomson Reuters: Consumer sentiment dropped to its lowest level since October 2016, citing “the partial government shutdown, the impact of tariffs, instabilities in financial markets, the global slowdown, and the lack of clarity about monetary policies.” pic.twitter.com/PuIJxYEWYK

— Chad Moutray (@chadmoutray) January 18, 2019

Expert Outlook

“The decline was primarily focused on prospects for the domestic economy,” Richard Curtin, director of the University of Michigan consumer survey, said in a statement. “The loss was due to a host of issues including the partial government shutdown, the impact of tariffs, instabilities in financial markets, the global slowdown, and the lack of clarity about monetary policies.”

Market Reaction

Gold has actually ticked downward following the news, currently down 0.61% and trading at $1,283.12/oz with a high of $1,293.20/oz and a low of $1,281.49/oz. February futures are down 0.75% and trading at $1,282.60/oz.

While typically such reports bolster the price of gold due to the mentions of poor economic outlook and uncertainty, it’s possible that other reports such as yesterday’s strong Philly Fed index continue to place selling pressure on the gold, perhaps offsetting potential effects of the consumer sentiment index.