Consumer confidence drops to 7-month low

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Americans grew less optimistic in the economy in June, dropping to the lowest level in seven months, according to the Survey of Consumers conducted by the University of Michigan.

The Index of Consumer Sentiment dropped to 94.5 at the beginning of June, down 2.7% from last month’s 97.1 but still up 1.1% from 93.5 last year.

“The modest early June drop of 2.6 points in the Sentiment Index masks a much larger decline since June 8,” Survey of Consumers Chief Economist Richard Curtin said. “Prior to that date the Sentiment Index had averaged 97.7, but since June 8th, the index fell to 86.7, a decline of 11 points.”

“While this break corresponds with James Comey’s testimony, only a few consumers spontaneously referred to him or his testimony when asked to explain their views,” Curtin said. “Importantly, the decline was observed across all political parties, but the loss in confidence among self-identified Republicans since June 8th was larger than among Democrats, 9.2 versus 6.8 index points, with Independents showing the greatest falloff. 11.5 index-points.”

An article by Jill Mislinski for Advisor Perspectives explains what this means historically:

The Michigan average since its inception is 85.4. During non-recessionary years the average is 87.6. The average during the five recessions is 69.3.

However, the size of the partisan difference between Democrats and Republicans remained largely unchanged at 51.2, compared to the 55.6-point difference the month before.

“The recent erosion of confidence was due to more negative perceptions of the proposed economic policies among Democrats and the reduced likelihood of passage of these policies among Republicans,” Curtin said.

The index of Current Economic Conditions dropped 1.9% from May’s 111.7 and 1.1% from 110.8 to 109.6 in May. The Index of Consumer Expectations also decreased from last month’s 87.7, dropping 3.4%. However, it increased 2.8% from last year’s 82.4 to 84.7.

“Fortunately, a strong job market, improved household income and wealth have provided a financial buffer against rising uncertainties,” Curtin said. “Nonetheless, consumers have become less optimistic about the future course of the domestic economy.”

“Even with the expected bounce back in spending in the current quarter, personal consumption is expected to advance by 2.3% for all of 2017,” he said.

One expert explained this drop in confidence is nothing to be concerned about.

“The drop in the University of Michigan index of consumer confidence to a seven-month low in June isn’t overly concerning as confidence had been unusually elevated for some time,” Capital Economics Economist Andrew Hunter said. “In any case, the index is still at a fairly strong level by past standards and suggests that the prospects for consumer spending remain bright.”

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