Final results for July from University of Michigan consumer surveys show that general consumer confidence has remained near record lows (see first chart). Composite consumer sentiment rose to 51.5 in late July, up from a record low of 50.0 in June, up 1.5 points, or 3.0 percent. The indicator is in line with previous recessions.
The Current Economic Conditions Index rose to 58.1 from a record low of 53.8 in June (see first chart). This is a 4.3 point or 8.0 percent increase for the month. The index is slightly above a record low but remains consistent with previous recessions.
The second sub-index – the Consumer Expectations Index, one of AIER’s leading indicators – lost 0.2 points, or 0.4 percent, in the month, and fell to 47.3 (see first chart). The index is at its lowest level since May 1980.
According to the report, the latest reading for July showed little change in consumer confidence from its historic lows in June. The one-year economic outlook has fallen to its lowest reading since 2009.” The report goes on to add, “At the same time, concerns about global factors have eased somewhat. This easing provided some limited support for durable goods buying conditions, which remained near an all-time low reached last month, as well as a modest dip in long-term inflation expectations.”
One-year inflation expectations fell to 5.2 percent in late July. This is the second decline in the past three months since it posted consecutive readings of 5.4 percent in March and April. The one-year forecast has risen above 3.5 percent several times since 2005, only to fall back (see chart two).
The five-year inflation forecast came in at 2.9% in late July. This result is the lowest reading since December 2021, putting it close to the middle of the 25-year range of 2.2 percent to 3.5 percent (see second chart).
The report states that “this month’s sentiment index was the second lowest on record, and the slowdown in personal consumption expenditures for the second quarter was no surprise.”
The decline in consumer attitudes reflects the confluence of events with inflation driving the group. Consistently high rates of price increases affect consumer and business decision-making and distort economic activity. Overall, economic risks remain elevated due to the impact of inflation, the intensification of the Fed’s tightening cycle, the ongoing fallout from Russia’s invasion of Ukraine, waves of new Covid-19 cases and lockdowns in China. With the midterm elections approaching, an escalation of negative political advertising may affect consumer confidence in the coming months. The overall economic outlook remains highly uncertain. Caution is required.