Consumer sentiment falls. – The Daily Tearsheet

Vital Statistics:

Stocks fell pretty dramatically on Friday on fears of new tariffs. Bonds rallied, presumably on the flight-to-safety trade. The 10 year bond yield fell 12 basis points to 4.24%. The business press has been citing inflation fears, which doesn’t make a lot of sense. The other explanation is end-of-quarter noise.

The week ahead will be dominated by the jobs report on Friday. We will also get ISM data. So far we haven’t seen the DOGE effects show up in the labor numbers, so this will probably be the first month it shows up.

Consumer sentiment fell in March, according to the University of Michigan Consumer Sentiment Survey. Consumers were more fearful about the job market, with two thirds expecting unemployment to rise. This is the highest reading since 2009.

Republicans joined independents and Democrats in their expectation that things will get worse. That said, the views of the economy are quite divergent, with Republicans a lot more sanguine than Democrats. So, if the survey is over-sampling one party versus another, it might skew the results.

Inflationary expectations also increased from 4.3% to 5.0%. I guess the news about tariffs is causing that, since PCE inflation peaked about 3 years ago and hasn’t been above 3% since 2023.

The Atlanta Fed GDP Now model sees -2.8% growth in Q1. This is a decline from the previous reading of -1.8%. The Fed Funds futures see a 80% chance of a rate cut in June and another 2 this year. If the Atlanta Fed model is remotely close, and the sentiment about employment is accurate, the Fed will need to get to r-star quickly and that means more than 3 cuts this year.