The rebound in consumer sentiment to the highest level in four months, as seen in the University of Michigan’s consumer sentiment index released on Friday, is encouraging as the outlook for inflation and spending improved.
As inflation continues to moderate—seen also in the survey’s results—and gasoline prices decline, consumers’ purchasing power is picking up.
Read more of RSM’s insights on the economy and the middle market.
The University of Michigan consumer sentiment index rose to 69 in the first half of September, up from 67.9 earlier. The uptick was driven by the improvements in both current and future economic conditions.
Short-term inflation expectations eased to 2.7% from 2.8%, while long-term inflation expectations edged up to 3.1% from 3.0% earlier.
That is a key reason why we believe spending will continue to stay strong for the remainder of the year, especially for discretionary items. Consumer appetites for buying new big-ticket items and new homes as a result increased, according to the survey.
In the meantime, given the uptick in consumer sentiment, there should be more reason to expect a solid month of retail sales for August, which will be released next week.
We should focus not the top-line number but on the control group, which is a proxy for GDP growth calculations, and more importantly the inflation-adjusted sales numbers. The retail sales data mostly includes sales of goods, which had another sizable decline in prices on the month.
