The University of Michigan’s Index of Consumer Sentiment rose to 67.8 in a preliminary August reading, up from 66.4 in the prior month, marking the first increase since June. This increase in consumer sentiment is a positive sign for the economy, indicating that consumers are feeling more optimistic about their financial situation and the overall state of the economy.
Consumers’ views on current economic conditions fell to 60.9 in August from 62.7 in the prior month. This slight decrease may be attributed to ongoing concerns about the impact of the COVID-19 pandemic on the economy. However, the index on expectations about the future rose to 72.1 — the highest level since April — from 68.8. This increase in future expectations suggests that consumers are hopeful about the economic outlook in the coming months.
Presidential election developments were a major driver of the August survey, according to Joanne Hsu, director of Surveys of Consumers. Sentiment for Democrats rose 6% as Vice President Kamala Harris gained ground in the wake of replacing Joe Biden as the Democratic nominee for president. On the other hand, sentiment for Republicans fell 5%. This shift in sentiment based on political developments highlights the influence of the upcoming election on consumer attitudes.
“Overall, expectations strengthened for both personal finances and the five-year economic outlook, which reached its highest reading in four months, consistent with the fact that election developments can influence future expectations but are unlikely to alter current assessments,” Hsu said. This statement underscores the impact of political events on consumer sentiment and the importance of considering both current and future economic conditions.
Year-ahead inflation expectations came in at 2.9% for the second straight month. These expectations ranged between 2.3 to 3.0% in the two years prior to the pandemic. Long-run inflation expectations came in at 3.0%, unchanged from the last five months. These expectations remain somewhat elevated relative to the 2.2-2.6% range seen in the two years pre-pandemic. These inflation expectations reflect consumer concerns about rising prices and the overall stability of the economy.
The survey also showed that 41% of consumers believe Harris is the better candidate for the economy, while 38% said Trump is better. “Survey responses generally incorporate who, at the moment, consumers expect the next president will be,” said Hsu, who noted that consumer expectations are subject to change as the presidential campaign comes into greater focus. Despite political preferences, consumers expect that inflation, their top concern, will continue stabilizing in the future.
In conclusion, the University of Michigan’s Index of Consumer Sentiment provides valuable insights into consumer attitudes and expectations regarding the economy. The increase in consumer sentiment, driven by political developments and future economic outlook, indicates a sense of cautious optimism among consumers. As the presidential election approaches, consumer sentiment may continue to fluctuate, but overall expectations for the economy remain relatively positive.