Michigan Consumer Sentiment Down 5.5% for July Preliminary

The July Preliminary came in at 80.8, down 4.7 (5.5%) from the June Final. Investing.com had forecast 86.5. Since its beginning in 1978, consumer sentiment is 6.2 percent below the average reading (arithmetic mean) and 5.1 percent below the geometric mean.

Surveys of Consumers chief economist, Richard Curtin, makes the following comments:

Consumer sentiment posted a monthly decline of 5.5% in early July, largely due to less favorable prospects for the national economy. This decline was caused by a misjudgement by consumers in the pace that the economy would recover as the pandemic eased. This involved both underestimating the economy's ability to reactivate supply lines and restore jobs, and the resulting impact on inflation. Rather than job creation, halting and reversing an accelerating inflation rate has now become a top concern. Inflation has put added pressure on living standards, especially on lower and middle income households, and caused postponement of large discretionary purchases, especially among upper income households. Consumers' complaints about rising prices on homes, vehicles, and household durables has reached an all-time record (see the chart). Purchase rates, however, have benefitted from record increases in accumulated savings and reserve funds. A critical issue is whether consumers will find greater value in keeping a significant portion of their savings as a precautionary hedge, or spending a significant portion in an effort to avoid their inflationary erosion and to benefit from buying-in-advance of increasing market prices. The precautionary impulse will quickly fade if the "transitory" spike in inflation extended into 2022. Resurgent consumer spending propelled by fiscal stimulus is likely to increase inflation. Small policy steps could now have a large impact on ending inflationary psychology. A slight increase in interest rates would be no surprise to consumers as 70% expected an increase in early July, a significant shift from the start of 2021 (44%) or from last July's survey (31%). [More...]

See the chart below for a long-term perspective on this widely watched indicator. Recessions and real GDP are included to help us evaluate the correlation between the Michigan Consumer Sentiment Index and the broader economy.