Consumer Sentiment Research Notes

by Jim Baird on July 13, 2012

Index declines for second consecutive month to reach lowest point in 2012

The University of Michigan Consumer Survey, a measure of the overall optimism of U.S. consumers regarding the state of the economy, slipped in July to 72.0, its lowest level of 2012.

The decline in the Index was in line with expectations, declining for the second consecutive month, as consumers appear to be increasingly acknowledging weakening economic conditions. 

Particularly concerning to consumers is the apparent deterioration in the employment picture in recent months.  Although yesterday’s weekly jobless claims release was a positive surprise, claims remain elevated and job creation has faltered significantly in the past three months.

Falling gas prices have provided a boost to households in recent months, but resurgent geopolitical risks within the Middle East are pushing crude oil prices higher even as the global economy slows.

The bottom line is that consumers remain wary of the near-term outlook for the U.S. economy and cautious about what it means for their personal financial circumstances.  Personal income growth remains lackluster, and is unlikely to improve against a backdrop of weakness in the jobs market. 

If sentiment continues to slide, consumer spending is also likely to suffer in the months ahead.  The risk of a so-called “vicious cycle” for the economy appears to be rising, as expectations for economic growth continue to be ratcheted down.

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