ANN ARBOR — Consumer confidence slipped in July, according to University of Michigan economist Richard Curtin, director of the Thomson Reuters-University of Michigan Surveys of Consumers.
All of the overall decline was in how consumers viewed future prospects for the national economy. The surveys, conducted by the UM Institute for Social Research, have been monitoring consumer attitudes and expectations for over 60 years.
“The good news is that consumers do not expect the economic slowdown to prompt an economy-wide recession; the bad news is that consumers do not expect the pace of economic growth to revive job and income prospects,” Curtin said. “Consumers never willingly choose to lower their aspirations; that change is slowly forced on them by unrelenting adversity. The greatest concern to consumers is that wage and job growth will remain depressed in the foreseeable future, and that these meager gains are likely to be diminished in the years ahead by rising taxes and benefit cutbacks.”
Personal Finances Remain Negative
Nearly half of all consumers reported in July that their finances had recently worsened, with equal numbers attributing the decline to lower incomes and to higher prices. Complaints about rising prices have shifted from gas to food prices. Just 10 percent of all consumers expected any inflation-adjusted gains in their incomes in the next year, and just 22 percent thought there was a better than even chance of real income gains over the next five years.
“Consumers expect continued economic stagnation since they believe that current economic policies are incapable of solving the problems facing the economy,” Curtin said. “While politicians continue their semantic posturing about how and when the fiscal cliff will be bridged, consumers have begun to take precautionary steps. Although politicians understand that no consumer likes this game of chicken, they have pinned their political hopes on the other party being blamed, while ignoring the economic consequences of inaction. Even a temporary extension would decrease the impact of uncertainty on consumer spending in the second half of the year.”
Job Growth Expected to Slow
News of recent economic developments heard by consumers has grown more negative in the past few months, with about half as many reports of job gains in the past two months (18 percent, down from 34 percent). The national unemployment rate was expected to increase on balance in both June and July, following expected declines in the prior four months. Importantly, in the July survey half expected no change in the jobless rate during the year ahead.
Consumer Sentiment Index
The Sentiment Index was 72.3 in the July 2012 survey, just below last month’s 73.2 but substantially above last July’s 63.7. Last year’s level was depressed in reaction to the debt ceiling debate. The July loss was concentrated in the Expectations Index, which fell to 65.6 in July from 67.8 in June, but it was well above last year’s 55.9. The Current Conditions Index improved to 82.7 in July from 81.5 in June, and last year’s 75.7. The gain was largely due to consumers’ reports of greater price discounting on durables. The Survey of Consumers is a rotating panel survey based on a nationally representative sample that gives each household in the coterminous U.S. an equal probability of being selected. Interviews are conducted throughout the month by telephone. The minimum monthly change required for significance at the 95 percent level in the Sentiment Index is 4.8 points; for Current and Expectations Index, the minimum is 6.0 points.