Consumer sentiment waned in early July, but that certainly doesn’t suggest that consumers are anything but optimistic about the economy. The outlook is still quite rosy.
The University of Michigan’s Consumer Sentiment index declined to 97.1 in early July, declining moderately from June and falling short of economist expectations of 98.0. Still, the index remains well above its long-term average and indicates that the consumer sector remains generally positive in its assessment of current and future economic conditions.
Sentiment has slipped in recent months after peaking in March, when workers were just starting to feel the positive effect of federal income tax cuts on their take-home pay. From that high point, the mood has moderated, but only at the margin.
As they’ve demonstrated on countless occasions in the past, consumers are at times surprisingly stoic in their ability to shrug off any number of sources of uncertainty, perhaps most notably the climate in Washington, the uncertain end game and impact of trade disputes and tariffs, and the fluidity of a range of geopolitical matters. Instead, they appear focused on matters that seem to affect them more directly: the overall strength of the economy, positive job market conditions, and income growth.
Rising inflation could change that assessment, particularly in the absence of stronger wage growth, but for now, any negative impact appears to be limited.
Despite the recent decline, the overall mood is more upbeat than it was a year ago. Consumers still hold a very positive view of current conditions, and are actually much more upbeat about the future than at this point last summer. That bodes well for spending, and should continue to be supportive of economic growth in the near term.
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