01/22/24 08:44 AM EST

Consumer Sentiment & Misery Index Diverge

Below is a chart and brief excerpt from today’s Market Situation Report written by Tier 1 Alpha. If you’re interested in learning more about the Hedgeye-Tier 1 Alpha partnership, there’s more information here.

Today's bonus chart contrasts the misery index in blue versus the University of Michigan Consumer confidence in red. A significant divergence is now starting to develop.

The Misery Index, traditionally calculated by summing the unemployment and inflation rates, signifies the economic distress experienced by average citizens. A higher Misery Index indicates more significant hardship. While we have thoroughly discussed the inflation component, its importance cannot be overstated, especially considering the government's critical role in mitigating this measure through job creation and mitigating recession impacts with fiscal spending.

Here are some statistics: Of the 2.55 million jobs generated in 2023, 636,000 were in the government sector, accounting for 24.92%. (2024 is an election year). Historically, a government hiring rate above 10% signals an approaching recession. Notably, the last instance of government jobs comprising 25% of new employment was in 2007, just before the Global Financial Crisis (2008 was an election year). The next highest instance of government hiring was 14.35% in 1999, before the Dotcom recession. (2000 was an election year). Contrarily, in 2003 and 2010—following recessions—while overall nonfarm payrolls increased, government hiring witnessed declines of -33.6% and -21%, respectively. "Good morning; I'm here from the government and here to help."

The University of Michigan's Consumer Sentiment Index in the United States experienced a significant increase, reaching 78.8, which marks the highest point since July 2021. This level represents a notable jump from the 69.7 recorded in December, surpassing the anticipated forecast of 70. The uplift in consumer sentiment was largely driven by growing confidence that inflation is easing and by the expectation of stronger income growth.

Specifically, consumers' expectations for inflation over the upcoming year decreased to 2.9%, hitting the lowest since December 2020, down from 3.1% the previous month. The outlook for the next five years also showed a slight decrease in inflation expectations, moving from 2.9% to 2.8%.

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