ANN ARBOR—Consumer confidence slipped a bit in July 2015, according to the University of Michigan Surveys of Consumers. Nonetheless, the data provide no indication of a break in the prevailing positive trend.
Indeed, the Sentiment Index has averaged 94.5 since December 2014, the highest eight-month average since 2004, according to U-M economist Richard Curtin, who directs the surveys.
Conducted by the U-M Institute for Social Research since 1946, the surveys monitor consumer attitudes and expectations. The data are available non-exclusively via Bloomberg.
Although one in 10 consumers, when asked to identify any recent economic developments they had heard, referred negatively to Greece, the Chinese economy and the Trans-Pacific Partnership on trade, it had virtually no impact on the Sentiment Index. The maintenance of confidence at high levels during the past eight months has been mainly due to modestly positive news on jobs and wages, Curtin said.
“Who could be surprised by a September hike in interest rates? A decade ago, the last time the Fed began a long series of interest rate hikes, an all-time record number of consumers anticipated the Fed action a full month prior to the Fed’s hike,” Curtin said. “At present, only a bare majority anticipate a rate increase in the months ahead.
Perhaps the repeated cries of the interest rate wolves have benumbed consumers to warnings of impending hikes, he said. Surprise hikes are associated with larger initial impacts on spending, exactly what the Fed would like to avoid. More must be done to communicate that a rate hike is highly likely before the actual announcement.”
Strong Economic Growth Expected
A disappointing pace of economic growth was the main reason for the small decline in consumer confidence, Curtin said. Importantly, consumers still anticipate that the expansion will continue. While expected changes in unemployment have been trendless at positive levels in the past year, the July survey was the first since last September that consumers on balance expected no significant change in the rate of joblessness during the year ahead.
Personal Finances Improve
Slowly improving finances were anticipated for the year ahead, an expectation that has remained largely unchanged in the past six months. Across all households, a median income increase of 1.8 percent was expected, the highest level since January’s 1.9 percent and well above last July’s 0.6 percent. Inflation-adjusted income expectations improved slightly, although four in 10 consumers still expected real income declines. Just three in 10 thought their chances were better than 50 percent to achieve inflation-adjusted income gains over the next five years.
Consumer Sentiment Index
The Sentiment Index was 93.1 in the July 2015 survey, down from 96.1 in June, but significantly above last July’s 81.8. During the past eight months, the average level of the Sentiment Index was higher for a longer period than at any other time since 2004. The Current Conditions Index was 107.2 in July, just below June’s 108.9, but well above last July’s 97.4. While the Expectations Index slipped to 84.1 in July from June’s 87.8, it nonetheless remained significantly above last July’s reading of 71.8.
About the Surveys
The Surveys of Consumers is a rotating panel survey based on a nationally representative sample that gives each household in the coterminous U.S. an equal probability of being selected. Interviews are conducted throughout the month by telephone. The minimum monthly change required for significance at the 95-percent level in the Sentiment Index is 4.8 points; for Current and Expectations Indices the minimum is 6 points.