00:00And, Joanne, let me start with inflation and just ask, because, you know, even though these numbers are better than the survey and better on the one year, at least, than what we saw last time, are they still high?
00:10Is it still high for consumers to expect 4.6 percent inflation a year into the future?
00:16Certainly 4.6 is not where we want to see inflation going into the future.
00:20To contextualize this month's numbers, we're about midway between where we were a year ago, closer to 3 percent, and the peak of inflation that we saw in April and May when people were really panicking about the tariff announcements.
00:34So we've come down quite a bit over the last few months, but consumers do not believe we're out of the woods.
00:39They're still expecting much higher inflation than they were just a year ago.
00:42And to that point, it is the lowest consumer sentiment reading since May.
00:48Joanne, I got to wonder, how much of that is also about a government shutdown historically that is weighed on sentiment?
00:55So as it turns out, at this time, we're not seeing a whole lot of evidence that the government shutdown, the federal government shutdown, is really weighing on consumers one way or the other.
01:04But it's only been about a week.
01:08It took several, a couple of weeks in 2019 for us to see an impact on sentiment.
01:14So I think the final read of the month will give us a little bit more information about that.
01:19So in terms of inflation, I hate to harp on this, but I look back at the graph and I don't see consumer expectations for inflation one year out at 2 percent like ever.
01:32Does the consumer just not believe that the Fed really wants to get us there?
01:36So I think we need to really bear in mind that the numbers that consumers have in mind aren't necessarily mapping one-to-one to the TCE inflation number or the CPI number.
01:48So it's really more important to kind of look at the trends that we see there.
01:52So there may be, I think, the inflation expectations that are consistent with a 2 percent target isn't necessarily going to be 2 percent on the dot.
02:00The key thing to take away now is that throughout 2025 and continuing on now, consumers are expecting considerably higher inflation than they were last year.
02:09And even last year, the consumers continued to be frustrated by the persistence of high prices.
02:13But, you know, of course, they did recognize that inflation had slowed from 2022.
02:18I just wonder if you drill down into housing, because Neil Dutt of Renaissance Macro put out a note a few days ago that's really stuck with me, pointing out that even as mortgage rates come down, we don't see consumers taking advantage of that, applying for more and buying more houses.
02:36And he says it's because home prices are likely declining, too, and that the consumer, that the home buyer can feel this, and that's why they're not going out and putting down money on a new house.
02:50Do you see that expectation in consumers at all, that home prices are going to start to move lower?
02:57When we ask consumers about home buying conditions and home selling conditions, their views on this are loud and clear.
03:04They believe that prices are too high right now.
03:07And despite the recent relief in mortgage rates, they still believe that interest rates are too high.
03:12We have to consider that many consumers are holding on to mortgages with much lower, much lower interest rates and probably paid for homes that are not nearly the price that they're going for right now.
03:22So consumers still believe it's a terrible time to buy a house.
03:26And on top of that, we're seeing a lot of evidence in our survey that consumers are worried about weakening labor markets.
03:31So if you're not feeling confident about your own incomes, it might not be a good time to make a long-term investment of that size.
03:38Joanne, I wonder if how you talk about the Michigan Sentiment Consumer Data Survey has changed over the past two weeks, just given that we're not given official data from the likes of the CPI report.
03:50Maybe we'll get it next week.
03:51That might be unlikely.
03:52We didn't get the jobs report the other week.
03:54Does your type of data that doesn't depend on a government being open, does it take on a new importance in this environment?
04:02I think that any policymaker, any economy watcher is going to want to consult a full suite of data.
04:11And I'm really happy to be able to present this to the public every two weeks, every three weeks, depending on the month.
04:18Consumers themselves, you know, as I said, don't seem to be that influenced by the government shutdown.
04:25When there were the developments around leadership of the BLS, that wasn't something that consumers were really thinking about a whole lot.
04:33Consumers are taking in themselves a whole lot of information around them.
04:37And so the consumer views, I think, are really important and do indeed become an even more indicator, a strong, important indicator when we're missing data elsewhere.
04:47Well, then you get oddities, Joanne, like Levi's earnings today, where they talked about the fact that the tariff hit is to come.
04:54At the same time, they've been able to raise prices and have a consumer buy pairs of jeans.
05:00Are we seeing this split as we've seen prior, in months prior, where the sentiment starts to turn?
05:07There's concern about what's to come, but at the same time, consumers hold their nose and continue to pay up for things.
05:14So I do think we're in a very different environment now than we were after the pandemic in 2022, when we also had very, very low sentiment and consumers were willing to spend through it.
05:24The reason they were willing to spend through it in a consistent and sustained basis then was because labor markets were incredibly strong, incomes were super stable, and consumers were very confident about those income prospects.
05:38And that's just not the case now.
05:40At the same time, stock markets are soaring.
05:42So there is a segment of the population that's really being buoyed by these strong asset values.
05:48But I think what's really important to note now is that there's a large variation in views across the income distribution, across the population.
05:56So even though there are many consumers who are telling us that they are struggling, that they are worried about job loss, that they are worried that unemployment is going to increase in the year ahead, there is another segment of the population that still feels pretty stable and is still willing and able to spend.
06:12We had seen, Joanne previously, huge splits in, you know, along political lines.
06:18If you were a Republican, you expected almost no inflation under President Trump, whereas Democrats expected inflation to soar.
06:27Do you still see that breakdown in terms of confidence or inflation expectations?
06:32There have been partisan differences in both of those things dating back at least to the Reagan administration.
06:37So that's not new.
06:38However, in April and May of this year, with the escalation of trade policy developments, we saw an enormous kind of pulling apart across the political spectrum where where Republicans were expecting a best case scenario and Democrats were expecting a worst case scenario with independents pretty much in the middle and but showing some skepticism.
07:02Since, you know, the worst fears of skyrocketing inflation haven't come to pass and at the same time, inflation also hasn't gone to zero on the other end of the spectrum, both ends of the political spectrum have moderated their views since then, though we see again the same partisan splits that we've seen since the 80s.
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