Consumer Sentiment: Preliminary Results for July 2021

The University of Michigan's Index of Consumer Sentiment (ICS) - Preliminary Results for July 2021 was released today:

Predicted: 85.0

• Actual: 80.8

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• Change from Previous Month: -5.497% (-4.7 points)

• Change from 12 Months Previous: +11.448% (+8.3 points)

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• Final ICS Reading for June 2021: 85.5
  
  
• Final ICS Reading for July 2020: 72.5

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From today's report:

"...Consumer sentiment posted a monthly decline of 5.5% in early July, largely due to less favorable prospects for the national economy. This decline was caused by a misjudgement by consumers in the pace that the economy would recover as the pandemic eased. This involved both underestimating the economy's ability to reactivate supply lines and restore jobs, and the resulting impact on inflation. Rather than job creation, halting and reversing an accelerating inflation rate has now become a top concern. Inflation has put added pressure on living standards, especially on lower and middle income households, and caused postponement of large discretionary purchases, especially among upper income households. Consumers' complaints about rising prices on homes, vehicles, and household durables has reached an all-time record (see the chart). Purchase rates, however, have benefitted from record increases in accumulated savings and reserve funds. A critical issue is whether consumers will find greater value in keeping a significant portion of their savings as a precautionary hedge, or spending a significant portion in an effort to avoid their inflationary erosion and to benefit from buying-in-advance of increasing market prices. The precautionary impulse will quickly fade if the 'transitory' spike in inflation extended into 2022. Resurgent consumer spending propelled by fiscal stimulus is likely to increase inflation. Small policy steps could now have a large impact on ending inflationary psychology. A slight increase in interest rates would be no surprise to consumers as 70% expected an increase in early July, a significant shift from the start of 2021 (44%) or from last July's survey (31%)..."

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The ICS is derived from the following five survey questions:

1. "We are interested in how people are getting along financially these days. Would you say that you (and your family living there) are better off or worse off financially than you were a year ago?"
   
   
   
2. "Now looking ahead, do you think that a year from now you (and your family living there) will be better off financially, or worse off, or just about the same as now?"
   
   
   
3. "Now turning to business conditions in the country as a whole, do you think that during the next twelve months we'll have good times financially, or bad times, or what?"
   
   
   
4. "Looking ahead, which would you say is more likely: that in the country as a whole we'll have continuous good times during the next five years or so, or that we will have periods of widespread unemployment or depression, or what?"
   
   
   
5. "About the big things people buy for their homes, such as furniture, a refrigerator, stove, television, and things like that. Generally speaking, do you think now is a good or bad time for people to buy major household items?"
   
   

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• Click here for more on how the ICS is calculated.

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The ICS uses a 1966 baseline, i.e. for 1966, the ICS = 100. So any number that is below the 1966 baseline of 100 means that the folks who were polled recently aren't as optimistic about the U.S. economy as those polled back in 1966.

The ICS is similar to the Consumer Confidence Index in that they both measure consumer attitudes and offer valuable insight into consumer spending.

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The "predicted" figure is what economists were expecting, while the "actual" is the true or real figure.

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• Click here to view the full University of Michigan report.

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