The University of Michigan’s preliminary estimate of consumer confidence remained stable in July. The consumer sentiment index came in at 98.4, little changed from the June’s figure of 98.2. The current conditions index dropped slightly lower, but was countered by a rebound in the expectations index. Overall, sentiment continues to be at elevated levels and is supportive of consumer spending.
Consumers’ income expectations continued to be positive, with around 61 percent of all respondents expecting income to either surpass or keep pace with inflation. Similarly, 45.2 percent expect family income levels to surpass inflation over the next five years. This is in line with consumers’ favourable expectations of labor market conditions. Moreover, 55 percent of all respondent now anticipate interest rates to either fall or remain the same, compared with 41 percent in May and 28 percent at the start of this year.
Looking at inflation expectations, the year-ahead rate moved one-tenth lower, to 2.6 percent, while the long-term inflation expectations measure rose three-tenths to 2.6 percent. The press release underlined that consumer expectations typically fall with a higher year-ahead inflation expectation – possibly because of higher inflation is associated more frequently with higher interest rates, which in turn are seen as unfavourable, noted Barclays in a research report.
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