What Happens to IG Effective Yield When Consumer Confidence Collapses?
What happens when consumer sentiment craters? Does it actually predict spending? Historical analysis of confidence crashes and what they mean for markets.
How IG Effective Yield Responds
Scenario Background
Consumer confidence measures how optimistic or pessimistic households are about their financial situation and the broader economy. The University of Michigan Consumer Sentiment Index is the most widely followed gauge, surveying 500+ households monthly. When it collapses, defined as a drop below 60 or a decline of 20+ points from recent levels, it signals that American households are genuinely worried about their economic future.
Read full scenario analysis →Historical Context
Michigan sentiment hit 50.0 in June 2022,the lowest reading in the survey's history, worse than the 2008 crisis (55.3) and the 1980 recession (51.7). Yet consumer spending remained positive throughout. In contrast, the 2008 confidence collapse (from 90 to 55) correctly predicted a severe spending retrenchment as job losses mounted. The 1990 collapse (from 90 to 65) preceded a mild recession with a brief spending pullback. The 1973-74 collapse (from 80 to 57) accompanied stagflation and correctly...
What to Watch For
- •Michigan sentiment falling below 55,extreme pessimism territory
- •Simultaneously rising unemployment and falling confidence, the recessionary combination
- •Auto sales declining 15%+ year-over-year, big-ticket pullback confirming sentiment
- •Consumer credit delinquencies rising, households acting on their pessimism
- •Divergence narrowing between sentiment and spending, feelings starting to affect behavior
Other Assets When Consumer Confidence Collapses
Other Scenarios Affecting IG Effective Yield
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