Post-Election Bump in Confidence Deflated by PoliticsBy and
Michigan sentiment gauge falls to lowest since November
Solid job market still likely to underpin consumption, economy
Americans are starting to come to grips with the reality that President Donald Trump and a Republican-controlled Congress might not deliver as much of a lift to their wallets and the economy as hoped.
The University of Michigan said Friday that its preliminary June index of consumer sentiment fell to 94.5, the lowest level since November, and that survey responses worsened after the first week of the month. That followed a report Thursday showing confidence among homebuilders eased to a four-month low.
Sentiment among consumers, business leaders and manufacturers had soared after Trump’s November victory on hopes that lawmakers would bolster the economy with looser regulation, lower taxes and more infrastructure spending. Now some of those plans are bogged down in Congress, which is devoting more time to investigations including Russia’s role in the 2016 election.
“People are getting a little concerned about the prospects for any change to come out of Washington,” said Russell Price, senior economist at Ameriprise Financial Inc. in Detroit. “We’re right back to being stuck in the mud when it comes to any type of tax cuts or regulatory changes.” Those policies were expected to “add a modest spark to the economy and potentially alleviate some of the concerns that Middle America had.”
Economic reports this year have been marked by a gap between the so-called soft data -- survey-based measures that capture the relatively lofty optimism of the moment and expectations for policy -- and hard data such as consumer spending that show the economy growing at a modest pace.
The University of Michigan said responses since June 8, the date of former FBI Director James Comey’s congressional testimony, show even greater declines in confidence, although few respondents referred to the event when explaining their views. That trend suggests the final number for June may be lower when it’s reported in two weeks.
“Republicans are starting to lose faith that Trump will actually deliver on these campaign promises,” Richard Curtin, director of the Michigan consumer survey, said in a conference call following the release.
The Bloomberg U.S. Economic Surprise Index, which measures whether incoming economic data beat or miss expectations of surveyed economists, fell below zero Thursday for the first time this year to the lowest point since just after last November’s election.
A separate report on Friday showed residential housing starts decreased 5.5 percent to a 1.09 million annualized rate in May, the weakest since September and the third straight monthly decline. Permits, a proxy for future construction, also fell, according to the Commerce Department figures. The results may be a sign homebuilding will weigh on second-quarter growth.
The economy still has plenty going for it despite lower prospects for policies getting through Congress.
A solid labor market and rising wages have given consumers steady footing. The share of respondents to the Michigan survey who expect financial gains in year ahead was 42 percent, the highest in a dozen years. That bodes well for household purchases even as confidence has taken a hit.
Consumer spending, which accounts for about 70 percent of the economy, is still likely to bounce back this quarter after rising at a mere 0.6 percent annualized pace in the first three months of the year. All in all, economists surveyed earlier this month expected a 3 percent rate of economic growth in the April-to-June period, more than double the previous quarter’s pace.
“Until we see either policy changes occur or a big pickup in economic growth, it’ll be hard to see sentiment and confidence go back up again, ” said David Berson, chief economist at Nationwide Insurance in Columbus, Ohio. At the same time, while optimism is down, “it’s still much higher than it was before the election.”
“Unless the economy falls out of bed, I don’t think we’ll see sharp declines in sentiment or confidence.”
— With assistance by Michelle Jamrisko