American Consumer Sentiment in June Eases From a One-Year High

Confidence among American consumers in June eased from an almost one-year high as favorable views about personal finances were offset by concerns about the economy’s prospects, a University of Michigan survey showed on Friday.

Key Points

  • Preliminary June index fell to 94.3 from 94.7 in May; median projection in a Bloomberg survey of economists called for 94
  • Current conditions index, which takes stock of Americans’ views of their personal finances, climbed to 111.7, the highest since July 2005, from 109.9
  • Measure of expectations six months from now fell to 83.2 from 84.9 in May that was the best since June 2015
  • Consumers see inflation over next five to 10 years at 2.3 percent rate, the lowest in records back almost a half century, after 2.5 percent in May
  • Consumers expect year-ahead inflation rate of 2.4 percent, the same as in May to match the lowest since September 2010

Big Picture

Consumers rated their current financial situation stronger than at any time since 2007, reflecting improved wage gains and low inflation that may encourage them to spend more and drive bigger gains in the economy. Conditions for the purchase of durable goods, such as automobiles, climbed to the highest level this year. The survey also showed a 10 percentage point decrease in net unfavorable responses to job creation, a sign May’s disappointing payrolls figure will prove temporary. Meanwhile, the decline in consumers’ long-term inflation expectations gives Federal Reserve policy makers room to hold the line on interest-rate increases.

Economists’ Takeaways

  • The job market is “really the key to spending in the year ahead,” Richard Curtin, director of the University of Michigan consumer survey, said on a Bloomberg conference call. There were more upbeat attitudes about payroll gains in the coming months, he said. “Consumers aren’t expecting major wage gains. Most of the wage gains being expected are among young people and those in the top third of the income distribution.”
  • “The Fed cannot raise rates with long-term inflation expectations this low,” Neil Dutta, head of U.S. economics at Renaissance Macro Research in New York, said in a note to clients
  • “The details of the report are reassuring and add to the evidence that the rebound we’ve seen in real consumption growth so far in the second quarter will march on for a little while longer,” Steve Murphy, an economist at Capital Economics, said in a note to clients
  • “Consumers’ opinions about the next six months are not nearly as rosy,” Tom Simons, an economist at Jefferies LLC, said in a research note. “Perhaps this is because of negative opinions about the outcome of the upcoming presidential election. It is also possible that this is a product of the late phase of the business cycle, since consumers cannot reasonably expect a distinct acceleration in growth after eight years of economic expansion.”

Other Details

  • Anticipated gains in inflation-adjusted incomes rose to the highest level since January 2007
  • Favorable attitudes toward buying conditions for durable goods, vehicles and homes largely unchanged from year ago
  • Favorable price perceptions of household durables reflects attitudes of consumers younger than 45
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