Economy

June Consumer Sentiment Up, but Less So Than 2 Weeks Ago

Paul Ausick

Published: June 29, 2018 10:35 am

Last Updated: January 11, 2020 9:40 pm

The final University of Michigan Consumer Sentiment Index for June improved slightly to a reading of 98.2 after slipping to 98.0 in May. When the preliminary June index score was reported earlier this month, the index reflected a more significant jump to 99.3.

The mid-June reading took into account respondents assessments of their own financial condition along with a favorable view of the current U.S. economy. The dip over the past two months is “minor” and is likely due to consumer concerns over tariff and trade issues. But strong employment numbers and rising incomes continue to be the primary influence on sentiment.

Economists polled by Bloomberg were expecting a final June reading of 99.2.

The month-over-month consumer expectations subindex fell from 89.1 to 86.3 (3.1%) and the current conditions subindex rose from 111.8 to 116.5 (4.2%).

Year over year, the consumer sentiment index is up 3.4%, the current conditions subindex is up 3.6% and the consumer expectations subindex is 3.0% higher.

The survey’s chief economist, Richard Curtin, said:

Consumer sentiment retreated in late June to just above the May reading largely due to concerns about the potential impact of tariffs on the domestic economy. The falloff in confidence was minor, as the Sentiment Index has been virtually unchanged for the past three months. The persistent strength has been due to favorable assessments of jobs and incomes. While consumers anticipated rising interest rates during the year ahead, those expected increases were associated with a modest decline in longer term prospects for the national economy. For the year ahead, consumers still anticipated that the economy would produce small additional declines in the unemployment rate as well as higher wage gains. Consumers also anticipated an uptick in inflation during the year ahead, partly due to rising energy prices and partly due to tariffs.

The potential impact of tariffs on the domestic economy was spontaneously cited by one-in-four consumers, with most expecting a negative impact on the domestic economy (21% out of 26%). The primary concerns were a downshift in the future pace of economic growth and an uptick in inflation. A longstanding belief of consumers is that trade with other countries results in a broader range of available goods at lower prices. When asked in a recent survey about their views on international trade, two-thirds of consumers thought that more trade with other countries would be better for the domestic economy (see the chart). To be sure, consumers’ judgements about the impact of higher tariffs will not crystalize until they gain more experience with actual changes in product prices and domestic employment. While tariffs may have a direct impact on only a very small portion of overall GDP, the negative impact could quickly generalize and produce a widespread decline in consumer confidence.