{"id":49728,"date":"2026-05-04T11:25:41","date_gmt":"2026-05-04T08:25:41","guid":{"rendered":"https:\/\/mk.gen.tr\/when-sentiment-breaks-what-consumer-confidence-is-telling-us-about-recession-risk-and-fiscal-reality\/"},"modified":"2026-05-04T11:25:41","modified_gmt":"2026-05-04T08:25:41","slug":"when-sentiment-breaks-what-consumer-confidence-is-telling-us-about-recession-risk-and-fiscal-reality","status":"publish","type":"post","link":"https:\/\/mk.gen.tr\/en\/when-sentiment-breaks-what-consumer-confidence-is-telling-us-about-recession-risk-and-fiscal-reality\/","title":{"rendered":"When sentiment breaks: What consumer confidence is telling us about recession risk and fiscal reality"},"content":{"rendered":"

Nerds are people too<\/strong><\/p>\n

Since 1946, economists and others who find themselves alone on Friday nights have studied the University of Michigan Surveys of Consumers for indications of consumer attitudes toward the U.S. economy. At its core, the survey measures current conditions and future expectations \u2014 but with a focus on the psychology of the consumer. And it\u2019s a remarkably accurate predictor of recession.<\/p>\n

Dating back to the 1950s, the index is Leonardo-Messi-accurate in predicting recession, save two false positives: 2011 and 2022. Two misses in seventy years. Your weatherman would kill for that average.<\/p>\n

Explaining and understanding the false positives<\/strong><\/p>\n

2011: The recession that almost came back<\/strong><\/p>\n

In 2011, the Great Recession was technically \u201cover\u201d in the same way a storm is \u201cover\u201d but the house is still flooding. Unemployment hovered near 9%, one in four mortgage holders were underwater, and the recovery felt anything but secure.<\/p>\n

Policy stepped in. The Fed launched QE2 and \u201cOperation Twist,\u201d selling short-term Treasuries and buying long-term ones to push down borrowing costs. It worked \u2014 lower rates supported housing and prevented a relapse. But they also reset the economics of affordability. Home prices didn\u2019t just recover; they began a long run of outpacing wage growth. Want to know why housing is so expensive in 2026? It\u2019s not the rate. It\u2019s the house. The seeds were sown in 2011. Consumer sentiment in 2011 flashed a legit warning. Policy stepped in. And the warning never became reality.<\/p>\n

2022: When feeling broke isn\u2019t the same as being broke<\/strong><\/p>\n

In 2022, households weren\u2019t overleveraged, they were flush. Over $5 trillion in COVID-era stimulus was still coursing through our veins. With no mechanism to unwind that support, the fuse was lit for inflation. The Fed, late and wrong in its \u201ctransitory inflation\u201d prognosis, began hiking rates at one of the fastest paces in modern history. Inflation<\/a> peaked above 9%, and consumer sentiment tanked. But 2022\u2019s false positive was more a result of consumer feelings about inflation than a genuine recession<\/a> threat. The seeds, however, were sown: 2020 and 2021 were the two largest single-year national debt increases in U.S. history.<\/p>\n

In both cases, government intervention either staved off recession<\/a> or significantly shaped the trajectory of the index. The reward: no recessions. The cost: trillions in debt and inflation that still runs above target. And there\u2019s an additional, insidious cost. Economists have a precise term for what happens when you insulate people from consequences: moral hazard. When you insure someone against loss, you change their incentive to avoid it.<\/p>\n

All healthy markets<\/a> correct. When we interrupt those corrections, we don\u2019t do so in a vacuum. The fever is meant to break the infection. The forest fire often clears the deadwood and makes room for new growth. When we prevent the reset, we don\u2019t eliminate the underlying imbalance \u2014 we defer it, sometimes compound it. We have conflated the absence of pain with the presence of health.<\/p>\n

Today and 1980<\/strong><\/p>\n

The University of Michigan Consumer Sentiment Index just plunged to 47.6 \u2014 its lowest reading ever, down 9% year-over-year. Driven in part by the war in Iran and the resulting oil price shock, it\u2019s only one component of a brewing perfect storm.<\/p>\n

If we hop in the way-back-machine and teleport to the second lowest reading in consumer sentiment history, we find ourselves in May of 1980. Then, as now, an Iranian energy shock battered consumer sentiment. Oil prices doubled between spring 1979 and 1980. Sound familiar? In the leadup to that crisis, the Fed repeatedly made a fateful choice: whenever inflation eased slightly, they loosened policy to prioritize growth rather than staying tight long enough to fully kill it. Inflation that is mostly-under-control-but-not-quite is far more dangerous than it looks. It provides almost no margin when the next shock hits.<\/p>\n

Even with that handicap, Fed Chairman Paul Volcker had an extreme advantage today\u2019s Fed does not possess: relatively low national debt.<\/p>\n

In 1980, the national debt was $910 billion and 26.2% of GDP. Today, U.S. debt stands near $39 trillion, or 120% of GDP. To put that in perspective: if you spent a million dollars a day starting from the birth of Christ, you still wouldn\u2019t have spent a trillion dollars by now. We owe thirty-nine of those.<\/p>\n

Lower debt gave Volcker options. Today, every 1% rise in interest rates adds a billion dollars per day to the wrong side of the balance sheet. Our irresponsibility toward our debt has created a coffin corner for the Fed.<\/p>\n

Cicero\u2019s warning<\/strong><\/p>\n

We find ourselves at a banquet of consequence. Forty years of budget abdication and the arrogant refusal to endure the discomfort of resetting inflation have left us vulnerable to any significant economic upset. Economic strength begets larger opportunity for success. Economic neglect begets larger opportunity for failure. Put partisan politics aside for a minute. There\u2019s not one American who wants the United States to be economically vulnerable<\/p>\n

To paraphrase a hauntingly prophetic quote from Cicero in 55 BC: \u201cThe budget should be balanced, the treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt.\u201d<\/p>\n

Two thousand years ago. What has changed?<\/p>\n

If I could wish one thing for my country and its leaders, it would be discipline. The discipline to respect history. To embrace restraint. To defeat inflation. To balance the budget. To be statesmen. To lead humbly, with dignity. And to treat our collective future as a stewardship, not a bargaining chip.<\/p>\n

Scott Peck observed that \u201cthis tendency to avoid problems and the emotional suffering inherent in them is the primary basis of all human mental illness.\u201d<\/p>\n

It also appears to be the basis of American fiscal policy.<\/p>\n\n

Mark Milam is the president and founder of Highland Mortgage.<\/em>
This column does not necessarily reflect the opinion of HousingWire\u2019s editorial department and its owners. To contact the editor responsible for this piece: <\/em>zeb@hwmedia.com<\/em><\/a>.<\/em><\/p>","protected":false},"excerpt":{"rendered":"

Nerds are people too Since 1946, economists and others who find themselves alone on Friday nights have studied the University of Michigan Surveys of Consumers for indications of consumer attitudes toward the U.S. economy. At its core, the survey measures current conditions and future expectations \u2014 but with a focus on the psychology of the…<\/p>\n","protected":false},"author":0,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"inline_featured_image":false},"categories":[1],"tags":[],"_links":{"self":[{"href":"https:\/\/mk.gen.tr\/en\/wp-json\/wp\/v2\/posts\/49728"}],"collection":[{"href":"https:\/\/mk.gen.tr\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mk.gen.tr\/en\/wp-json\/wp\/v2\/types\/post"}],"replies":[{"embeddable":true,"href":"https:\/\/mk.gen.tr\/en\/wp-json\/wp\/v2\/comments?post=49728"}],"version-history":[{"count":0,"href":"https:\/\/mk.gen.tr\/en\/wp-json\/wp\/v2\/posts\/49728\/revisions"}],"wp:attachment":[{"href":"https:\/\/mk.gen.tr\/en\/wp-json\/wp\/v2\/media?parent=49728"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mk.gen.tr\/en\/wp-json\/wp\/v2\/categories?post=49728"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mk.gen.tr\/en\/wp-json\/wp\/v2\/tags?post=49728"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}