Consumer sentiment dropped to 65.6 in June, a seven-month low, which was much less than expected with declining sentiment on personal finances as the focus, according to the University of Michigan survey released on Friday. The subindex for personal finances fell to 79, the lowest since October.
The drop is not consistent with what other economic data has shown in the last couple of months, notably falling inflation and gasoline prices.
Read more of RSM’s insights on inflation, the economy and the middle market.
A big part of that divergence was due to lower confidence in the job market from low- and middle-income earners, who have been much more sensitive to rate hikes and softer labor market conditions.
While higher-income earners account for most consumer spending, it is important to not ignore the problems that others are facing.
Inflation expectations inched up for the 12-month-ahead metric to 3.1% from 3.0% while the 5- to 10-year expectations stayed unchanged at 3.3%.
These expectations came amid further evidence of disinflation through the import channel in May, with the top-line measure of import prices falling by 0.3%, and the ex-petroleum metric falling by 0.4%. On a year-ago basis, import prices increased by 1.1%.
Still, the sentiment downside surprise was not statistically significant and within the margin of error, according to the director of the survey, essentially pointing to unchanged sentiment when compared to May’s number.
The takeaway
We should take in the data with some caution, especially when there are external factors such as the change in the survey methodology or the incoming election.
