The University of Michigan will be releasing the preliminary results of its consumer sentiment survey covering the month of July.
Economists forecast that the consumer sentiment index will ease to 98.0. Over the past few months, consumer sentiment has been somewhat erratic. However, the index remains at high levels.
The long term trend underlines the consumer confidence in the US economy. Despite some minor hiccups due to the threat of escalating trade wars, the consumer sentiment index remains positive.
This bodes well for the US economy. The Fed has also now thrown in the towel and vowed to cut rates during the course of the year. The markets, in general, expect the Fed to lower rates at least twice, with a larger rate cut quite possible at the July Fed meeting.
This comes after the Fed Chair Jerome Powell’s made his remarks to the US Congress last week.
But recent economic data has been somewhat mixed. The June jobs report showed a solid rebound. This could potentially lead to a higher consumer confidence index reading. Various other measures of the jobs report indicate the same.
The recent, JOLTS job openings report showed a record number of open vacancies. This could potentially translate into more job creation. But the overall sentiment for the US economy remains one that is cautious.
UoM Consumer Sentiment Drops in June
Consumer sentiment was hit by a number of factors that led to the decline in the index in June. The UoM’s survey came in at a revised 98.2. The initial reports showed the index at 97.9 in June.
In May, consumer sentiment was at 100. This was a downward revision from the initial reports of 102.4.
Economists polled forecast that consumer sentiment would ease modestly to 99.0.
The index for expectations fell sharply as consumers grew concerned about the trade tariffs. However, the results came at a time when the US administration threatened Mexico with higher tariffs.
While the administration eventually pulled back its threats, the impact of trade tariffs was felt on the consumer side. At the same time, Washington already raised tariffs to 25% on over $200 billion worth of goods imports from China.
According to the UoM survey, over 40% of respondents reacted negatively to tariff threats made by the US administration.
The index of current conditions increased slightly during the month. Overall, the report for June was brushed aside. The markets were expecting to see a lower print following the previous monthly gains in the consumer sentiment index.
At the same time, the rising threats on trade made by the US were also expected by many. UoM noted that the index reading was consistent with a 2.5% increase in household consumption.
Besides the consumer sentiment index, the expectations on inflation were also released. The survey noted that consumers expect inflation to remain at 2.2% in the near term. This marks an important aspect as the Fed has been struggling to raise inflation.
Will Consumer Confidence Bounce Higher?
There is a good chance that the consumer confidence index could remain consistent within the previous figures. Consumer sentiment could pick up after the US and China called for a temporary truce to the trade wars.
Alternatively, the US economy looks to be fairly stable. This is further supported by the possibility of rate cuts, which could make things such as home affordability within reach.
Recent inflation data showed that headline inflation rose 0.1% on the month in June. On an annualized basis, the consumer price index eased to 1.6% from 1.8% in May. The Fed had previously indicated that given the consistent slow pace of inflation pressures, it was willing to let consumer prices run briefly above the 2.0% inflation target rate.
With inflation staying broadly muted and the lack of inflationary pressures, there is scope for the US consumer confidence to match, if not beat estimates.