Michigan Consumer Sentiment survey preview: The pool of happiness spreads

The University of Michigan will issue its preliminary Survey of Consumers for July on Friday July 19^th at 10:00 am EDT, 14:00 GMT. The survey consists of three indexes--the Index of Consumer Sentiment, the Index of Current Economic Conditions and the Index of Consumer Expectations. Each result is revised once. The survey began in 1978.

Forecast

The preliminary Consumer Sentiment Index is projected to rise to 98.5 in July from 98.2 in June

Consumer sentiment and the labor economy

The long running job US expansion continues to underpin consumer attitudes.  June payrolls regained the initiative adding 224,000 new positions, far more than the 160,000 consensus estimate and more importantly putting to rest concerns that two week months, February’s 41,000 and May’s 72,000 were the heralds of a weakening trend in employment.

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The five decade low in unemployment at 3.7%, the ease of finding new work with employers across the country reporting labor shortages in the most recent Fed beige book and wage gains near post-recession highs for eleven months add to the sense of economic security.

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Retail Sales

Consumers have been on a modest spending tear this year.  Retail sales rose 0.4% in June, well in front of the 0.1% forecast. They have been positive for four straight months and five out of the last six.  Spending in the control group category, the government’s consumption component of GDP climbed 0.7% more than double the 0.3% prediction.  They have also been ahead for four months in a row and five of the last six.  Robust household spending is a clear sign of consumer happiness.

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Conclusion

The labor market and compensation are the most important factors in consumer attitudes.  As the job economy remains buoyant, not only for the general run of workers but reaching into the ranks of the under-employed and those with marginal attachment to the labor force, the benefit for consumer optimism is obvious and strong.

The recent retail sales numbers will help convince wary business executive and planners that while the China trade dispute may disrupt manufacturing supply chains it has not affected the US consumer, helping to keep production and employment on the boil.

Happy consumers and their purchases will also be noticed by the Fed when it contemplates rate policy after the July 31^st FOMC.  If the Fed cuts 25 basis points but then shifts back to a discrete neutral the dollar will notice too.