The University of Michigan’s Consumer Sentiment Index (CSI) is regarded as one of the leading indicators of consumer confidence in the United States. The CSI survey asks consumers about their own personal finances, as well as their views on the state of the US economy. As measured by the CSI, consumer confidence typically drops right before recessionary periods, whereas rising consumer confidence predicts increased consumer spending and economic growth. This pattern is clear in the following chart:
And this chart sheds some light on relationship between inflation and consumer confidence:
What I see is inflation peaking around 1990, 2000, and 2007, around the same time consumer confidence begins to falter and followed by recessions. The biggest drop in consumer confidence came with the pandemic recession and subsequent burst of inflation. But even though inflation has largely subsided since 2022, consumer confidence remains in the doldrums.
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