Sentiment slips in preliminary July release
The University of Michigan Consumer Sentiment Index slipped in July to 81.3, a modest decline from the previous month’s reading of 82.5 and a directional surprise given expectations for a modest increase. With this decline, the index has dipped below its level at the end of 2013, but remains in its year-to-date range.
The economy has clearly improved since its outright contraction in the first quarter, but economic data in recent months has been mixed. However, some of the key drivers of the consumer mood have been among the bright spots.
Stocks posted solid gains in June, capping an impressive first half for the year, which has historically helped boost consumers sense of their financial position.
Employment data also continues to improve, suggesting that job market conditions are not only constructive, but gathering some momentum. Gains in nonfarm payrolls have exceeded expectations while jobless claims have been edging lower. Historically, labor market health has been a significant influence on the collective mindset of consumers and their outlook for the health of the economy.
Despite this modest backup, measures of sentiment remain near post-recession highs. Sustained indications of improving confidence bode well for the future direction of consumer spending – a key support to overall economic growth. June retail sales reinforce that view to a degree, as a number of retail sectors experienced solid gains for the month. Nonetheless, the headline gain was limited by softer auto sales and retailers tied to the housing sector, which has experienced a soft patch of its own.
Limited income gains may put a lid on what households are able to spend, particularly in the absence of a greater appetite to tap credit to fuel that spending. Household debt service levels remain low from an historical perspective, suggesting that the capacity to borrow is there. The core issue will be how motivated creditworthy consumers may be to use it.
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Consumer sentiment hits four-month low (MarketWatch)