Consumer Sentiment Floats On in July

People wave American flags as they ride through 4th of July Parade in Alameda, California on Monday, July 4, 2016. / AFP / GABRIELLE LURIE (Photo credit should read GABRIELLE LURIE/AFP/Getty Images)

Consumer sentiment floated slightly higher early July as Americans grew a bit more upbeat on the health of the economy, according to data released Friday.

The University of Michigan’s preliminary reading of its consumer sentiment index 98.4, up from 98.2 in June and slightly below economist expectations of 98.6.

“Consumer sentiment remained largely unchanged in early July from June, remaining at quite favorable levels since the start of 2017,” said Richard Curtin, chief economist for the Surveys of Consumers. “Perhaps the most interesting change in the July survey was in inflation expectations, with the year-ahead rate slightly lower and the longer term rate moving to the top of the narrow range it has traveled in the past few years.”

The optimistic outlook comes on the heels of positive survey results from the Philadelphia and New York Fed surveys of regional manufacturers. The inflation outlook likely reflects consumers noticing that prices have remained low, defying predictions that tariffs would push prices up, and the Fed’s plan to cut its interest rate target, which should boost growth over the medium term, possibly raising inflationary pressure.

“Higher inflation was related more frequently to rising interest rates and was associated with higher unemployment expectations,” Curtin pointed out.

That is the opposite of the usual Phillips Curve explanation posited by economists which holds that inflation rises when unemployment falls.


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