Inflation Driving Consumer "Misery" (3/3)

The large falls in consumer confidence in 2022 have correlated fairly well with the rises in misery indices in Europe and the US - see chart below.

• The divergences in the series at the beginning of the pandemic in 2020 are noteworthy, with US consumer confidence holding up despite soaring "misery", and eurozone consumer confidence dropping sharply despite the "misery" index holding steady.
• This might be explained by the large initial rise in the US unemployment rate as Americans lost their jobs but confidence remained buoyed by stimulus payments; conversely European unemployment did not rise sharply though European consumers did not see similar balance sheet-bolstering stimulus payments.
• Either way it's clear that with unemployment rates at/near all-time lows in the Eurozone and US, rising inflation is the major driving force behind the drop in consumer confidence.
• As the Fed and ECB tighten, a small rise in unemployment might not lead to much deterioration in consumer confidence - and might actually boost it significantly if inflation comes down. Likewise, if energy prices were to begin moderating.

Source: Conference Board, European Commission, MNI Calculations