What The University Of Michigan Consumer Sentiment Survey Means For The Economy, Inflation And Consumer Confidence

The consumer price index for June increased 1.3%, while the index increased 9.1% over the past 12 months, with energy and food leading the way yet again for inflation.

The Data: As of Friday morning, the University of Michigan Surveys of Consumers released the preliminary results on consumer sentiment for July 2022.

According to the report, the consumer sentiment index for July was 51.1, increasing by 2.2% from the previous month as the index was at an all-time low of 50.

The consumer expectations index declined -40.1% year-over-year to 47.3, which is the lowest since the 1980s.

What This Means: The consumer sentiment index is an indicator used to measure the confidence consumers have in their current financial situations and with the economy. Essentially, as this index declines, it shows weakness in consumer confidence, which can negatively impact the economy as consumers spend less.

The report does show that consumer sentiment for July surprisingly increased, which could be attributed to falling gas and oil prices over the previous weeks, leaving consumers with more cash in their pockets.

The consumer expectations index is a forward-looking indicator on the economy that uses consumers’ six-month outlook for business conditions, employment and income to inform better investment and business decisions, according to Investopedia.

As the consumer expectations index reached recent lows since the 1980s, it is clear that consumers are worried about the direction of the economy and are not expecting positive sentiment in the near term.

Also Read: Hot Inflation And Earnings Misses Weigh On Equity Futures

Inflationary Pressures: University of Michigan Surveys of Consumers Director Joanne Hsu commented, “Buying conditions for durables adjusted upwards, owing both to consumers who cited easing supply constraints and those who believed that one should buy now to avoid future price increases, which would exacerbate inflation going forward.”

Since the COVID-19 pandemic, Americans have been anxious to get out of their homes to shop, dine out and travel, as this past Fourth of July weekend recorded the most drivers on the road, as reported by AAA.

Although the consumer price index for June may not be forward-looking, consumer expectations are at their lowest due to the Russia-Ukraine war, China's "zero-COVID" policy and volatile commodity prices which could drive inflation further.

The median expected year-ahead inflation rate was 5.2% opposed to 5.3% from the June report, while median long-run expectations fell to 2.8%, just below the 2.9%-3.1% range, as stated in the survey.

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