Consumer Sentiment Slips Slightly in Late June
|Consumer sentiment fell 1.2 points in June but remains close to its recent level. Most of the drop was in expectations of future conditions, which fell 2.5 points during the month. Buying plans remain positive.
Consumers Remain Reasonably Upbeat
Consumer sentiment fell in late June and was down for the month as a whole. The latest report from the University of Michigan shows that consumer sentiment fell 0.8 percentage points in late June to 93.5 and was 1.2 points lower than it was in May. Of course the survey totally predates the market turmoil unleashed by this morning’s surprising Brexit vote and is likely considered old news in light of that development. The Consumer Sentiment Survey, however, does reveal a great deal of insight into consumers’ mindset and for the most part that mindset has been fairly positive. Consumers generally feel better about their household finances and most expect their finances to remain the same or improve during the coming year. Plans to make major purchases, including vehicles and homes, remain relatively high.
Even though the current conditions index fell 0.9 points in late June, consumers’ assessment of current economic conditions still ended the month at its highest level since January 2007. The improvement reflects strong income growth over the past year, lower inflation and steady progress by consumers at paying down debt. The proportion of consumers expecting their family income to beat inflation over the next five years rose 2.9 points in June to 41.4 percent, which is the highest this series has been since data began to be collected. Debt service burdens have also fallen to their lowest levels since the early 1980s, as measured by the Federal Reserve’s financial obligation ratio, giving consumers more peace of mind.
One of the reasons consumers feel so confident that income growth will outpace inflation is that inflation expectations for the medium and longterm have fallen steadily in recent years, while confidence about job and income growth has generally improved. The median expectation for inflation over the next 5 to 10 years rebounded a bit in June, climbing 0.1 percentage points to 2.6 percent. The measure hit an all-time low of 2.3 percent in early June, however, and has averaged 2.5 percent over the past three months.
Buying Plans Remain Positive
With household finances improving, buying conditions remain fairly high. The buying conditions index for big-ticket items rose 2 points in June to 164, with all of the increase coming in attitudes toward purchasing large household items. The proportion of consumers stating that it was a good time to buy a new vehicle or home fell slightly in June, although both series remain near their recent highs. Buying conditions are generally supportive of solid gains in consumer spending in June and suggests that consumer spending should be supportive of economic growth during the second half of 2016.
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