Consumer Sentiment Falls in July on Weaker Expectations
Consumer confidence retreated in July as Americans’ expectations deteriorated to an eight-month low.
While the University of Michigan said July 31 that its final index of sentiment decreased to 93.1 from 96.1 in June, the gauge has held above 90 for eight straight months, the longest period since a 17-month stretch ended in early 2005. The median projection of economists polled called for 94 after a preliminary July reading of 93.3.
“The maintenance of confidence at high levels during the past eight months was mainly due to positive news on jobs and wages,” Richard Curtin, director of the Michigan Survey of Consumers, said in a statement. Still, “while expected changes in unemployment have been trendless in the past year, the July survey was the first since last September that consumers on balance expected a slight uptick in joblessness in the year ahead.”
A slump in the stock market in late July amid weakness in China probably also damped Americans’ views of the domestic economy. Even with the decline in sentiment, respondents anticipated their finances to slowly improve in the coming year.
Across all households, a median income increase of 1.8% was expected, the highest since January and up from a 0.6% projection a year ago. After adjusting for inflation, however, just three in 10 Americans surveyed thought their chances were better than 50% for real income gains over the next five years, according to the report.
The survey’s gauge of consumer expectations six months from now dropped to 84.1 from 87.8 in June. The preliminary July reading was 85.2.
The gauge of current conditions decreased to 107.2 from 108.9 last month. The initial reading was 106.
Americans expected an inflation rate of 2.8% in the next 12 months, up from 2.7% a month earlier, the report showed. Over the next five to 10 years, they also anticipated a 2.8% rate of inflation compared with 2.6% in June.
The Michigan report is in line with the other measures. The Bloomberg News Consumer Comfort Index dropped last week by the most in five months as attitudes about finances and the economy deteriorated.
A gauge from the Conference Board plunged 8.9 points this month, the most since August 2011. Worker pay increases that barely exceed inflation are limiting household sentiment about their financial situations, indicating consumers may be less inclined to splurge.
Gross domestic product rose at a 2.3% annualized rate in the second quarter after a revised increase of 0.6% in the first three months of the year, Commerce Department data showed July 30. Sluggish global markets, a strong dollar and insufficient wage gains may continue to limit growth. Federal Reserve officials, considering when to begin raising rates this year, concluded July 29 that the U.S. is nonetheless making progress.
“These reports show growth continuing but easing,” said Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit, adding that a September lift-off may be too soon if global concerns continue. “To be on the cautious side, I think it’s more of a December call at this time.”
While the job market continues to improve, wage growth remains modest.
Another report July 30 showed worker pay rose in the second quarter at the slowest pace on record. The 0.2% advance was the smallest since records began in 1982 and followed a 0.7% increase in the first quarter, the Labor Department said.
Employers added 223,000 jobs last month, bringing to 1.25 million the number of jobs added so far this year. The 5.3% jobless rate is the lowest level in seven years.
