You would think that the Americans would be feeling pretty good right now. Wages are increasing almost monthly. Workers have their pick of jobs in this tight labor market and the coronavirus seems to be peaking. So why are so many consumers unhappy?

 

Consumer sentiment numbers, as measured by the University of Michigan Consumer Sentiment Survey, fell in preliminary February 2022 numbers to its lowest level in more than a decade. Back then in October 2011, the unemployment rate was more than double the present 4 percent rate.

 

In a January 2022 Gallup Poll, 72 percent of those surveyed thought it was a great time to find a quality job. That was the highest reading since 2001. Historically, there is a strong correlation between consumer sentiment and rising employment but this time it is different. So, what has changed?

 

In one word: Inflation. To understand why, we need to recognize that economic society has two roles: the average worker is both a producer and a consumer. Essentially, most Americans receive a certain income in exchange for some level of production. In a perfect world, the more one produces, the higher the pay, or so the economists tell us.

 

The consumer side of us believes that in exchange for our production we receive money and access to buying products at reasonable prices. Today, that side of the equation is becoming increasingly problematic as the inflation rate climbs and supply chain problems continue to make some products scarce at any price. As such, we may feel that we are not getting a fair shake in this economy.

 

I also suspect that the Michigan survey's target audience had something to do with this decline in consumer sentiment. The survey was confined to those families that are making more than $100,000 annually. That demographic, more likely than not, earmarks some of their income annually toward retirement savings. In the stock market. As such, their attitude may be partially influenced by what is happening in the financial markets.

 

That brings me to the latest data from the American Association of Individual Investors (AAII), which surveys investors' sentiment toward the stock market. Over the last few weeks, the number of individuals that believe the stock markets are going to continue to fall is much higher than historical averages. In short, individuals are bearish on America. This negative sentiment, coupled with the shock of a higher rate of inflation, may explain the sour state of the consumer right now.

 

I count myself as one of these disgruntled consumers/producers. As my loyal readers know, the equity markets are going through one of the most volatile periods in recent memory. I warned readers almost two months ago to reduce risk and prepare for this outcome. But don't think the wild daily swings in the markets are a cake walk no matter how well prepared you may be.

 

The stress for those trading these markets frequently (like me) is extremely high. To relieve stress, I often resort to cooking (and exercise). Imagine my dismay, therefore, over the past few months when grocery shopping.

 

Aside from the risk of contracting the Omicron variant while standing in line, I increasingly discover that some of the most important ingredients for my dinner menu are nowhere to be found. Worse, even if they are available, the prices climb on a weekly basis. That package of London broil or lamb chops has doubled in price in just a few short months. "One package per customer" signs assault me at every turn.

 

This weekend, I noticed everything from a loaf of fresh-baked bread to a container of almond milk have shrunk seemingly overnight. Even the rotisserie chickens seem to have gone on a diet, despite hefty price increases.

 

My own reaction is to spend less, work harder, and try to quell the helpless anger I feel at this sudden turn of events. I am old enough to remember when inflation was a fact of life for Americans, but it is still a shock to me. I can just imagine how younger workers, who have never seen the devastating impact of inflation, could be somewhat grumpy with their lot in life at the moment.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.