U.S. University of Michigan consumer sentiment index falls in July

The preliminary estimate of the University of Michigan index of consumer confidence eased to 97.1 in July, coming in below consensus expectations of 98. The fall was driven by consumers’ assessment of current economic conditions, which turned less favourable. The sub-index dropped to 113.9 in June, in the midst of increasing worries over protectionist trade policies. But, consumers’ expectations of future economic conditions were greatly the same from last month, and remain close to levels seen at the start of this year. In the meantime, the one-year and long-term inflation expectations dropped in July to 2.9 percent and 2.4 percent, respectively.

The press release stated that negative references to the possible effect of tariffs have accelerated since May, and are at 38 percent at present. Within this, negative references were higher for the top third of the income distribution, at 52 percent. The main worries expressed by consumers were a decline in the rate of economic growth in the future, and acceleration in inflation. In line with this outlook, business expectations in the past few months and compared with that of last year declined in July, with more respondents viewing business conditions as ‘worse’ and ‘unfavorable’, respectively. Moreover, slightly more consumers perceived it as ‘a bad time to buy’ household durables relative to June, noted Barclays in a research report.

However, consumers continue to be positive about future economic conditions. Around 73 percent of all respondents expect to have incomes that either match or exceed inflation in the next one to two years. Moreover, the expectation that the country will have good times ahead remained widely stable in July. Overall, while concerns over tariffs have risen, they have yet to negatively impact expectaions for the future. Higher after-tax incomes, a solid labor market, and above-trend economic growth continue to anchor consumer confidence, stated Barclays.

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