The University of Michigan said in its final report on Friday that consumer confidence in the United States fell less than expected in June. The consumer confidence index fell 1.3% month-on-month to 68.2 but was higher than the proposed preliminary estimate and increased by 6.2% compared to the same month in 2023.
While consumers are confident that inflation will continue to moderate, many have expressed concerns about the impact of higher prices and weak incomes on their personal finances. These trends have offset the improvement in the short- and long-term outlook for business conditions partly caused by Joan Hsu, Director of Consumer Surveys, said: “Expectations for interest rate easing remain almost 36% higher than June 2022 lows.”.
The current economic conditions index fell 5.3% since May to 65.9, while the consumer expectations index added 1.2% month-on-month to 69.6.
Consumer sentiment can also influence monetary policy decisions. If consumer sentiment is strong, it could indicate a strong economy, which could lead to expectations of higher inflation. Central banks, such as the Fed, may respond to such expectations by adjusting interest rates. Changes in interest rates can affect borrowing costs, investment decisions, and the performance of various financial assets.
Consumer sentiment is particularly important for the retail sector. When consumers are optimistic about their financial situation and economy, they are more likely to make discretionary purchases, such as clothing, electronics, and other consumer goods. Positive consumer confidence can boost retail sales and benefit businesses in the retail sector.
University of Michigan Consumer Confidence and Economic Importance
Consumer Confidence from the University of Michigan refers to a report that measures the level of consumer confidence and sentiment in the United States. The University of Michigan conducts monthly surveys to collect data on consumer attitudes and expectations regarding the general economy, personal finances, and purchasing behavior.
The consumer confidence index is calculated based on survey answers, which cover a wide range of topics such as current economic conditions, employment expectations, inflation expectations, and future economic prospects. The index is designed to capture changes in consumer sentiment over time and provide insight into consumer spending patterns.
The University of Michigan’s revised consumer confidence report reflects any adjustments or updates made to the initial survey results. Reviews can be the result of additional data collection, methodological improvements, or other factors that may affect the accuracy or representation of initial estimates.
The University of Michigan Consumer Confidence Index is closely monitored by economists, policymakers, and market participants because it provides an indicator of consumer confidence, which is critical to understanding consumer behavior and predicting future economic trends. High levels of consumer confidence generally indicate increased consumer spending and economic growth, while lower confidence levels can indicate caution or lower consumer spending.
The University of Michigan’s Adjusted Consumer Confidence Index is one of the many consumer confidence indicators that investors and policymakers take into account. Changes in consumer sentiment can be seen as an indicator of future consumer behavior, providing insight into potential trends and shifts in economic activity.
The revised Consumer Confidence Report from the University of Michigan provides up-to-date and more accurate information about prevailing consumer sentiment, helping analysts and policymakers make informed decisions and assess the overall health of the economy.
Sharp drop in consumer confidence and rising inflation fears in May
Consumer sentiment fell sharply in May, bringing Michigan’s consumer confidence index to a six-month low.
The closely watched index fell about 10 points from the last reading in April to 67.4, the lowest level since November. The decline comes after the consumer optimism survey moved within a three-point range over the past four months.
It was the biggest drop in the index in nearly three years, and was well below the 76.0 reading expected by economists polled by the Wall Street Journal and Dow Jones Newswire.
“While consumers have been retaining their rule over the past few months, they are now seeing negative developments on a number of dimensions. “They have expressed concerns that inflation, unemployment and interest rates may all move in an unfavorable direction in the coming year,” said survey director Joan Hsu.
The survey showed similar declines when consumers were asked about their current economic conditions and their expectations for future business conditions.
Inflation fears are exacerbating
Consumers said they see inflation worsening over the next year, and expect an inflation rate of 3.5 percent, up from 3.2 percent in last month’s survey and above the mid-range seen before the pandemic. The survey also showed that consumers’ long-term inflation expectations for the next five years rose, remaining well above the pre-pandemic range. The worsening sentiment on price pressures comes as inflation readings continue to rise in 2024.
Expectations of consumer inflation are an important metric for Fed officials, who are closely monitoring the survey results for clues if consumer behavior will drive prices up. Fed officials have repeatedly said the central bank will not be in a position to consider lowering the benchmark interest rate until inflation is under control.
