Consumers remained a generally upbeat group in June, despite a somewhat more skeptical view of the near-term outlook for the economy that contributed to slippage in the headline sentiment index.
The University of Michigan Index of Consumer Sentiment dipped modestly to 95.1 from 97.1 in May, marking its lowest point since the fall Presidential election. The partisan divide is still quite extreme, with self-identified Republicans remaining very upbeat and self-identified Democrats still pessimistic in their views about the economy. Given the extreme partisan divide, independents once again represented a meaningful barometer for the overall result, coming in at 94.6 – very close to the headline index result.
The contentious atmosphere in Washington and the likely impact on several of the President’s fiscal policy pillars anticipated to provide a near-term boost to the economy has not been lost on survey participants. If the prospects for individual and corporate tax reform, infrastructure spending, and other regulatory reform were expected to provide a boost to growth, the increasingly difficult path ahead for the President to push his legislative agenda forward is having the opposite effect.
Still, the continued strength of the labor market has been a key support, as the decline in the unemployment rate to 4.3 percent, the exceptionally low level of layoffs, and still solid job creation have provided a boost of confidence to consumers. Moreover, household financial conditions remain on an uptrend, supported by modestly improving wage growth, a stronger housing market, and portfolio gains.
Earlier this week, consumer confidence rose a higher than expected 1.3 points to 118.9 in June, which is close to its average for the past three months. Compared to sentiment, consumer confidence has been able to hold on to most of its post-election surge.
The bottom line is that the collective mood of consumers remains relatively upbeat. Coupled with stronger financial positions, households appear well-positioned to boost spending in the coming months, providing a key support for the broad economy to accelerate after a tepid start to the year.