| Consensus | Consensus Range | Actual | Previous | |
|---|---|---|---|---|
| Index | 65.5 | 64.0 to 68.0 | 72.6 | 64.4 |
| Year-ahead Inflation Expectations | 3.0% | 2.9% to 3.1% | 3.4% | 3.3% |
Highlights
The University of Michigan consumer sentiment index presents a big upside surprise at 72.6 in the preliminary July report. The index is up 8.2 points from the prior month and the highest since 72.8 in September 2021. The July reading is well above the consensus of 65.5 in the Econoday survey of forecasters. The increase represents stronger perceptions for both current conditions and the near future.
The current conditions index is up 8.5 points to 77.5 in July and the highest since 77.7 in October 2021. The six-month expectations index is up 7.9 points to 69.4 in July, the highest since 79.0 in July 2021.
It appears that consumers find present conditions less gloomy than they have for about a year-and-a-half, and are more optimistic about the near future. This suggests that fears of a recession and weak labor market have retreated, as well as worries about inflation.
The one-year inflation expectations measure is up a tenth to 3.4 percent in July, a minor increase that leaves the reading just above 3.3 percent in June which was the lowest since 3.1 percent in March 2021. The five-year inflation expectations measure is also up a tenth to 3.1 percent in July. This is the top of the recent trend range of 2.9 percent-3.1 percent. It suggests little change in consumers' outlook for price increases.
Fed policymakers will read the inflation numbers with some satisfaction that so far their efforts to combat the current period of inflation have remained credible and kept inflation expectations anchored.
The current conditions index is up 8.5 points to 77.5 in July and the highest since 77.7 in October 2021. The six-month expectations index is up 7.9 points to 69.4 in July, the highest since 79.0 in July 2021.
It appears that consumers find present conditions less gloomy than they have for about a year-and-a-half, and are more optimistic about the near future. This suggests that fears of a recession and weak labor market have retreated, as well as worries about inflation.
The one-year inflation expectations measure is up a tenth to 3.4 percent in July, a minor increase that leaves the reading just above 3.3 percent in June which was the lowest since 3.1 percent in March 2021. The five-year inflation expectations measure is also up a tenth to 3.1 percent in July. This is the top of the recent trend range of 2.9 percent-3.1 percent. It suggests little change in consumers' outlook for price increases.
Fed policymakers will read the inflation numbers with some satisfaction that so far their efforts to combat the current period of inflation have remained credible and kept inflation expectations anchored.
Market Consensus Before Announcement
In the first indication for July, consumer sentiment, which in June rose by more than 5 points to 64.4, is expected to rise a bit further to 65.5.
Definition
The University of Michigan's Consumer Survey Center questions households each month on their assessment of current conditions and expectations of future conditions. Preliminary estimates for a month are released at mid-month and are based on about 420 respondents. Final estimates are released near the end of the month and are based on about 600 respondents.
Description
The pattern in consumer attitudes and spending is often the foremost influence on stock and bond markets. For stocks, strong economic growth translates to healthy corporate profits and higher stock prices. For bonds, the focus is whether economic growth goes overboard and leads to inflation. Ideally, the economy walks that fine line between strong growth and excessive (inflationary) growth.
This balance was achieved through much of the nineties and, in large part because of this, investors in the stock and bond markets enjoyed huge gains. It was during the late nineties that the consumer sentiment index hit its historic peak, reaching levels that were never matched during the subsequent 2001 to 2007 expansion nor during the long expansion following the Great Recession.
Consumer spending accounts for more than two-thirds of the economy, so the markets are always dying to know what consumers are up to and how they might behave in the near future. The more confident consumers are about the economy and their own personal finances, the more likely they are to spend. With this in mind, it's easy to see how this index of consumer attitudes gives insight to the direction of the economy. Just note that changes in consumer confidence and retail sales don't move in tandem month by month.
This balance was achieved through much of the nineties and, in large part because of this, investors in the stock and bond markets enjoyed huge gains. It was during the late nineties that the consumer sentiment index hit its historic peak, reaching levels that were never matched during the subsequent 2001 to 2007 expansion nor during the long expansion following the Great Recession.
Consumer spending accounts for more than two-thirds of the economy, so the markets are always dying to know what consumers are up to and how they might behave in the near future. The more confident consumers are about the economy and their own personal finances, the more likely they are to spend. With this in mind, it's easy to see how this index of consumer attitudes gives insight to the direction of the economy. Just note that changes in consumer confidence and retail sales don't move in tandem month by month.
