Consumer sentiment slumps to record low: U. Michigan

Yahoo Finance’s Emily McCormick joins the Live show to break down the University of Michigan’s preliminary June sentiment index.

BRIAN SOZZI: All right, let's get over to our very own Emily McCormick. Breaking news on the consumer, Emily.

EMILY MCCORMICK: Well, Brian, consumers are taking note of inflation, and it's weighing heavily on sentiment. The University of Michigan's preliminary June Sentiment Index just dropped, and it came in at 50.2. Now that compares with May's reading of 58.4. And this June print is much worse than expected, since economists, as you can see there, were looking for a reading of 58.1.

Now, in terms of what was driving this deterioration, this ongoing deterioration in sentiment, the University of Michigan Surveys of Consumers director Joanne Hsu attributed this primarily to inflation. Now here were the details from that press release.

Quote, "Consumer sentiment declined by 14% from May, continuing a downward trend over the last year and reaching its lowest recorded value, comparable to the trough reached in the middle of the 1980 recession." She went on to say that consumers' assessments of their personal financial situation worsened about 20%. And 46% of consumers attributed their negative views to inflation up from 38% in May. Now the share has also only been exceeded once since 1981.

Now, of course, guys, all of this begs the question of when are we going to see that peak in inflation. This is the big question on investors' minds, especially after this morning's Consumer Price Index Report came in hotter than expected and showed an unexpected acceleration in consumer prices. Those were up by 8.6% in May, the biggest annual increase in that CPI that we've seen since late 1981. It also took out that previous 41-year high we saw on the CPI in March at 8.5%, ramped also from April's 8.3% annual increase. And of course, on a monthly basis, we saw CPI accelerate as well, rising by about 1%.

Now, beneath these broad headline numbers, I do want to call attention to a couple of other key categories that we saw in this morning CPI. Food, energy, and shelter were some of the largest contributors, with gas and oil prices back on the rise over the last month.

And the report also showed more price increases in those reopening related categories, with airline fares up another 12.6% month on month, on top of an 18.6% rise that we saw during the prior month. So clearly, this is not the direction for prices the Fed or the market wanted to see today. Clearly, consumers also making note of these ongoing price increases, as we saw in that University of Michigan report as well, guys.

JULIE HYMAN: Yeah, so as if that CPI report wasn't bad enough, then getting this consumer confidence report, obviously, reflecting sentiment, but also affecting sentiment. And we now have stocks taking yet another leg lower. So just a few moments ago, the Dow was only down about 60-- only down about 605.

Now it's down more than 700 points, about 2 and 1/4%. The S&P falling now by 2 and 1/2%. The NASDAQ down by nearly 3%. So going from bad CPI this morning to badder or more bad in the form of consumer confidence. And looking ahead at the inflation picture, Emily, that's what you wrote about in this morning's "Morning Brief." You were looking in particular at the apparel and retail input figures into inflation.

EMILY MCCORMICK: Absolutely, Julie. And I think that's one thing that we really need to keep in mind here because if we think about the headlines that have really been dominating financial news over the past couple of weeks, including at Yahoo Finance, we've been talking a lot about the fact that companies like Target, like Kohl's, like Abercrombie and Fitch and Gap, have been talking about this, really, bloat that they're seeing on the inventory side and the fact that they're going to likely have to cut prices paid by consumers, really implementing discounts here for shoppers.

But what Nicholas Colas over at DataTrek really wanted to highlight-- and I think it's an important point for investors to keep in mind-- is that apparel retail is really only a small fraction of overall CPI. So even if you took that out, we would still see inflation at more than 5%. And that was based on the April numbers, since that report from Nicholas Colas had come out before this morning's 8:30 CPI print.

So I think we really have to keep in mind that the bigger contributors here are on the energy and food side. And when you take a look at the core, a big contributor is on shelter. And all of these are continuing to see price appreciation here. And all of that is keeping CPI and inflation, more broadly, at quite elevated levels, guys.

JULIE HYMAN: And keeping the Fed hawkish. Thank you so much, Emily.

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