Consumer sentiment in July declined due to increasing concerns about prospects for the national economy that were mainly voiced by high income households, according to the Consumer Sentiment Index released today by the University of Michigan.
The index of consumer sentiment came in at 89.5, a decrease from last month’s 93.5, according to the index. The current economic conditions are 108.7, a decrease from last month’s 110.8.
The main factor in the decrease of expectations is the U.K.’s decision to leave the European Union.
“Prior to the Brexit vote, virtually no consumer thought the issue would have the slightest impact on the U.S. economy,” said Richard Curtin, Surveys of Consumers chief economist. “Following the Brexit vote, it was mentioned by record numbers of consumers, especially high income consumers.”
Nearly one-in-four, about 24%, of households with incomes in the top third mentioned Brexit when asked to identify any recent economic news they had heard.
In fact, for these households, the initial impact on domestic stock prices meant personal wealth losses after Brexit. Although stock prices rebounded quickly, an underlying sense of uncertainty about global prospects as well as the outlook for the domestic economy remained.
“To be sure, the overall decline in the Sentiment Index was rather minor, and could be anticipated to recover some of those losses in late July or early August,” Curtin said. “Importantly, the least affected components have been personal finances and buying plans. Real consumer spending can be expected to rise by 2.7% in both 2016 and 2017.”
Economists expected the preliminary July consumer sentiment index to hit 93, a decrease from 93.5 in June's final reading, Thomson Reuters consensus estimate stated, according to an article by Matthew Staver for CNBC.
“Overall, the post-Brexit market shock has already been more than reversed, suggesting that consumer confidence will soon rebound,” Capital Economics Chief Economist Paul Ashworth said. “But the upcoming presidential election does present a downside risk in the second half of this year, particularly as both candidate have strong net disapproval ratings.”
