Economy

July Consumer Sentiment Dips on Trade Concerns

Paul Ausick

Published: July 13, 2018 10:35 am

Last Updated: January 11, 2020 9:04 pm

The preliminary University of Michigan Consumer Sentiment Index for July slipped slightly to a reading of 97.1 after posting a reading of 98.2 in June. The preliminary reading is 4% higher than the 93.4 index in July of 2017.

The dip over the past three months has left the index reading near its 2017 average of 97.7 and the 97.4 average since the Trump administration took office in January of 2017.

Economists polled by Bloomberg were expecting a preliminary July reading of 98.2.

The month-over-month consumer expectations subindex rose from 86.3 to 86.4 (0.1%) and the current conditions subindex dipped from 116.5 to 1139. (2.2%).

Year over year, the current conditions subindex is up 0.4%, and the consumer expectations subindex is up 7.33%.

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

The continuing strength has been due to favorable job and income prospects, with consumers under age 45 anticipating the largest income gains since July 2000. So far, the strength in jobs and incomes has overcome higher inflation and interest rates. The darkening cloud on the horizon, however, is due to rising concerns about the potential negative impact of tariffs on the domestic economy. Negative concerns about the impact of tariffs have recently accelerated, rising from 15% in May, to 21% in June, and 38% in July (see the chart). Among those in the top third of the income distribution (who account for half of consumer spending), 52% negatively mentioned the impact of tariffs on the economy in early July. The primary concerns expressed by consumers were a decline in the future pace of economic growth and an uptick in inflation. Among those who expressed negative views of the tariffs, the Expectations Index was 30.5 points below those who made no mention of tariffs, and in addition, the expected inflation rate was six-tenths of a percentage point higher. While consumers may not understand the intricacies of trade theory, they have substantial experience making decisions about the timing of discretionary purchases based on prospective trends in prices.