Consumer Sentiment Lifts From All-Time Low

Consumers are a little more upbeat about the economy and their personal finances than they were last month, but not by much. 

The latest reading for the Consumer Sentiment Index edged up to 51.1 in July, according to preliminary survey results from the University of Michigan published on Friday. The 50 reading for the index in June was a record low going back to 1952. Still, this month’s slight uptick doesn’t change the overall message: Consumers are very concerned. 

 
University Of Michigan Consumer Sentiment Index 

University of Michigan’s Surveys of Consumers Director Joanne Hsu said that consumers’ “current assessments of personal finances continued to deteriorate, reaching its lowest point since 2011.”

But that was offset by an increase in the number of consumers who said they would make a major purchase today. Hsu said that some consumers saw easing supply constraints, while others believed they should buy now to avoid future price increases. 

Perhaps the most important element of the consumer sentiment survey was what it said about consumers’ expectations of future inflation. 

Based on the survey, consumers now expect inflation to average 5.2% over the next year, down from 5.3% in the June survey. At the same time, they expect inflation to average 2.8% over the next five to 10 years, down from 3.1% in June. 

The 2.8% figure is particularly encouraging, as it brings long-term expectations solidly below the 11-year high they set in June. Fed Chairman Jerome Powell said last month that those elevated inflation expectations were one factor that pushed him to support a 75 basis point rate hike at the June Federal Open Market Committee meeting.  
 
Consumer 5- To 10-Year Inflation Expectations 

Perhaps these lower long-term inflation expectations in July may keep Powell and the central bank from being even more aggressive at their monetary policy meeting on July 27. Markets are split between whether the Fed repeats another 75 basis point hike or unleashes a monster 100 basis point hike in response to an acceleration in consumer prices to 40-year highs.  

At least for now, investors are encouraged that consumer sentiment in general, and inflation expectations in particular, are slightly less daunting today than they were a month ago. 

The SPDR S&P 500 ETF Trust (SPY) was last trading up by 1.5% in Friday’s session. 

Follow Sumit Roy on Twitter @sumitroy2