Skip to Content
August 17, 2018 Blog 1 min read
Consumers are still broadly upbeat, but rising prices are starting to weigh on confidence.
8-17-18 Consumer Sentiment ChartConsumers are still broadly upbeat, but it’s also clear that confidence has slipped in recent months. It’s not that consumers view the economy as bad; they don’t. But they are noticing the return of higher inflation, most notably in big ticket items.

The University of Michigan’s Consumer Sentiment index fell to 95.3 in the preliminary August reading, falling well short of consensus expectations. Of particular note was a sharp decline in respondent’s assessments of current conditions. While still quite positive by historical standards, it’s clear that the mood of the consumer has dimmed.

Growth is strong, job creation remains robust, and it’s relatively easy to find a job. So what has changed? Inflation, which has been dormant for a decade, is starting to rear its ugly head as prices are rising across an increasing variety of goods and services. The negative impact of rising prices hasn’t been lost on consumers.

Retail sales growth has picked up, and consumer spending remains solid. Some of that is directly attributable to rising costs.

Wage growth has also shown signs of picking up, but for consumers who expected higher take-home pay to boost their purchasing power, rising prices is like a bucket of cold water in the face. At a minimum, it’s disappointing.

Weak productivity growth in recent years hasn’t helped, and businesses are passing their higher costs along to their customers. Better productivity gains were a positive last quarter, and further gains could help to blunt the impact of rising labor and input costs for consumers. Still, prices appear poised to continue to rise.

All things considered, the economic picture is still a positive one, and consumers remain a key pillar to the expansion. The overall consumer mood is still upbeat, but it’s also clear that they are paying attention and they aren’t happy that prices are rising, particularly on higher ticket items like cars and houses. At the margins, that’s likely to drag on spending, but doesn’t appear likely to derail the expansion.
Past performance does not guarantee future results. All investments include risk and have the potential for loss as well as gain.

Data sources for peer group comparisons, returns, and standard statistical data are provided by the sources referenced and are based on data obtained from recognized statistical services or other sources believed to be reliable. However, some or all information has not been verified prior to the analysis, and we do not make any representations as to its accuracy or completeness. Any analysis non-factual in nature constitutes only current opinions, which are subject to change. Benchmarks or indices are included for information purposes only to reflect the current market environment; no index is a directly tradable investment. There may be instances when consultant opinions regarding any fundamental or quantitative analysis may not agree.

Plante Moran Financial Advisors (PMFA) publishes this update to convey general information about market conditions and not for the purpose of providing investment advice. Investment in any of the companies or sectors mentioned herein may not be appropriate for you. You should consult a representative from PMFA for investment advice regarding your own situation.