Consumer sentiment falls in July amid ongoing inflation concerns
The University of Michigan’s Index of Consumer Sentiment fell to 66.4 in July, down from 68.2 in June.
Consumer attitudes toward the economy are guarded as high prices remain a drag for consumers, particularly for those with lower incomes, according to University of Michigan economist and director of surveys Joanne Hsu.
“Continued strength in consumer spending is consistent with the fact that sentiment among wealthy and high-income consumers—those with the most purchasing power—has climbed sharply over the past two years,” Hsu said. “These consumers generate a disproportionate share of spending and have been supported not only by rising asset values and incomes, but also growing confidence in the economy as well. In contrast, the burden of high prices continues to drag down sentiment for less wealthy consumers.”
[READ MORE: Retail sales better than expected in June]
The Current Economic Conditions Index fell to 62.7, down from 65.9 in June. The Expectations Index fell to 68.8, down from 69.6.
Other insights from the July report are below.
Inflation Expectations
Year-ahead inflation expectations fell for the second straight month, reaching 2.9%. In comparison, these expectations ranged between 2.3 to 3.0% in the two years prior to the pandemic. Long-run inflation expectations came in at 3.0%, unchanged from last month and remaining remarkably stable over the last three years. These expectations remain somewhat elevated relative to the 2.2-2.6% range seen in the two years pre-pandemic.
Election developments exert little impact on sentiment
Although many consumers expressed that their expectations for the economy are contingent on the outcome of the upcoming election, there is little evidence that recent election developments— the Biden-Trump debate, the Trump assassination attempt and Biden’s exit from the presidential race — moved overall economic sentiment this month.
As the presidential campaign continues to take shape and policy discussions become more clear, the election may become more salient for consumer attitudes toward the economy, according to Hsu.
Wealth gap widens
In July, sentiment for consumers with the largest stock holdings rose, while it fell back for those with little or no stock wealth. This continued a trend of a widening wealth gap in sentiment: Consumers with the largest stock holdings have seen a 71% increase in sentiment since June 2022, in contrast to only an 11% gain for those without stocks.
The sentiment gap between consumers with large stock holdings and those without stocks currently stands at 33 index points.
The patterns, Hsu said, reflect substantial variation in economic experiences; rising stock markets benefit consumers with stock portfolios but leave behind consumers who do not own stocks. Likewise, during stock market downturns, those with large holdings will experience losses that would be avoided by those with no holdings.
