00:00I mean, Joanne, first, do our eyes deceive us? Is this not the lowest sentiment in your survey since you
00:07began taking it?
00:08And two, if it is, how did we get to this point where it's worse than even what we saw
00:13in 2020 when we were all living with lockdowns?
00:17So it is a historic low, but I think that what we should be paying attention to is the fact
00:21that we've had several months of consecutive decline.
00:24And that follows 2025 in which sentiment had been trudging along at near lows to begin with, near these historic
00:32lows.
00:33Essentially, consumers are loud and clear that they are extremely frustrated by the persistence of high prices and their challenges
00:40with their cost of living.
00:42They were already feeling stretched in 2025. And with this 25 percent increase in gas prices, they're feeling stretched even
00:50more.
00:51But there is a glimmer of hope here. Most of the deterioration and sentiment was concentrated in the short run
00:57with year ahead business conditions,
00:59year ahead personal finances, year ahead inflation expectations. And the outlook for the long run is not nearly as sour.
01:06Although five to 10 year inflation expectations are higher than they were last month,
01:11in line with expectations at 3.4 percent, that's still, you know, 140 percent above the Fed target.
01:22How high or how low has that been lately? And is 3.4 percent a bad number?
01:283.4 percent was what we were seeing last fall. So it's not really out of line with what we've
01:34seen in recent months.
01:36It is higher than what it was in 2024. You know, I think in 2024, it peaked around 3.2
01:42percent.
01:42And it's certainly higher than what we were seeing before the pandemic when it was closer to 2.8 percent.
01:48So we, you know, it's we don't want to see it keep ticking up.
01:53But I wouldn't call this month's increase in long run expectations a cause for panic.
01:59It remains to be seen if consumers' beliefs about long run inflation expectations will still remain controlled
02:05or if they will continue to rise in the weeks and months ahead.
02:08Joanne, does that mean that it's unlikely that some of the sentiment you're seeing,
02:12that that will feed through to actual consumer behavior?
02:15I mean, I think it has already passed through to consumer behavior.
02:19We've been seeing a weakening in consumer spending that we were seeing in Q4.
02:23We are seeing it in Q1. And in incoming data, consumer spending is not nearly as robust as it was
02:28before.
02:29And again, you know, we've been at, you know, the lowest 10 percent of sentiment readings for the past year
02:35or so.
02:36So it seems to me that, you know, consumers are indeed adjusting their spending.
02:41And with gas prices as high as they are with no end in sight, it seems unlikely that, given their
02:49pessimism about multiple facets of the economy,
02:52that they will just swallow that increase in their energy expenditures and keep spending elsewhere as well.
02:59Joanne, as we see these historic numbers, I wonder, over the past, how such bad numbers have fared during election
03:09years.
03:09Obviously, during midterms, you tend to see a flip, especially, I guess, with numbers this low.
03:14But have you looked at the relationship between what voters do when sentiment is bad and inflation expectations are high?
03:22What we've seen, what I'm more familiar with is what happens during general elections and presidential elections.
03:28When sentiment is on the rise, it tends to favor the party that's already in the White House, the incoming
03:34party.
03:34When sentiment is on the decline, we tend to see a flip in the White House.
03:38It will be really interesting to take a look at what tends to happen with midterm elections.
03:42So how are some of the political considerations playing into this now?
03:46Obviously, it's not just, you know, prices at the pump, but it's the overall atmosphere of the United States being
03:52on a wartime footing.
03:56Consumers are quite concerned about the fact that we are in the midst of a war right now.
04:00And indeed, the decrease in sentiment that we saw this month was very, very broad based across age, income, education,
04:07and political party.
04:09Members of all of Democrats, Republicans, and independents alike all saw decreases in their sentiment.
04:16So it really is quite universal, this frustration with high prices.
04:20We had 53% of consumers spontaneously telling us that high prices were eroding their personal finances.
04:27That was a surge from last month when I believe it was around 47% and much higher than it
04:32was a year ago when it was below 40%.
04:34So consumers are very frustrated and are feeling very stretched by high prices.
04:40And what's happening at the pump is only compounding that.
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