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Feeling Deflated

Mike Zaccardi

CONSUMERS’ MOOD HAS never been worse—at least according to the University of Michigan Consumer Sentiment Index. The monthly survey, released last Friday morning, paralleled the worse-than-expected Consumer Price Index report. May’s inflation reading notched a fresh four-decade high as Americans—and the rest of the world—grapple with soaring food and energy costs. The issue is front and center, and we all feel it every day.

The hits keep on coming. This weekend, AAA confirmed a grim milestone: The average price of a gallon of regular gas topped $5. Climbing costs at the pump and supermarket checkout line appear to finally be taking their toll on consumers. According to debit and credit card transaction data from Bank of America, spending growth—not including gas and groceries—dipped in recent weeks. Moreover, even though consumers collectively have more than $2 trillion in excess savings, spending is barely above early 2021 levels, once inflation is factored in.

Surging raw material prices and labor costs are weighing on corporations, too. According to FactSet, more S&P 500 companies than ever cited inflation on earnings conference calls during the second-quarter reporting season. Target and Walmart shares have plummeted as those mega-retailers struggle to predict consumer spending patterns and to cope with ongoing supply chain challenges. Those two stocks dropped hard in the week they issued profit reports last month.

Investors might feel like nothing is going right. Global stocks are down sharply in 2022 even as the bond market endures unprecedented losses. But don’t overlook the good news: Unemployment is near record lows and incomes are solid. That means many folks have the cash to buy shares at today’s lower prices.

And we are, as evidenced by the 2022 How America Saves report from Vanguard Group. The Malvern, Pennsylvania, fund company notes that workers invested 7.3% of their 2021 wages into their employer-sponsored retirement plan, up from 6.9% in 2012.

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Philip Stein
Philip Stein
5 months ago

While bond fund NAVs have taken a beating so far this year, let’s remember that fund yields are rising as old bonds mature and new bonds are purchased.

People depending on bond interest for all or most of their income should be pleased.

Bob Wilmes
Bob Wilmes
5 months ago

I’m waiting for the “Whip Inflation Now” buttons from Gerald Ford to come back into style from 1974. Hard to believe it’s been nearly 50 years ago when that was the plan to deal with 23 per cent annual inflation. I was a sailor in the US Navy making the then princely sum of $288 per month.

parkslope
parkslope
5 months ago

Thanks for another excellent summary of your views on the market and economy.
While I’m pleased that retirement savings were up last year, I can’t help but wonder if the increasing pain from inflation, as well as concerns about investment losses, are causing more people to cut back on their retirement savings.

Mike Zaccardi
Mike Zaccardi
5 months ago
Reply to  parkslope

Thank you. And a great point. Last year was perhaps the easiest time to be socking money away in a 401k. We’ll see what the 2022 numbers look like a year from now. Hopefully no reversal!

Rick Connor
Rick Connor
5 months ago

Thanks Mike. Nice, balanced story with good information. It just cost me $76 to fill a Honda Accord!

Mike Zaccardi
Mike Zaccardi
5 months ago
Reply to  Rick Connor

Thanks, Rick! Tough everywhere you look!

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