After hope fell in June, preliminary University of Michigan sentiment data for July showed a drop in ‘current expectations’ which sent the headline lower, from 98.2 to 97.1, well below expectations – its lowest since Jan 2018.
Inflation expectations (short- and medium-term) fell in July.
Annual increases of 3.0% in home prices over the next five years were anticipated in early July, the highest figure recorded since 2007.
As UMich notes, so far, the strength in jobs and incomes has overcome higher inflation and interest rates, but the darkening cloud on the horizon is due to rising concerns about the potential negative impact of tariffs on the domestic economy.
More importantly, these concerns have greatly accelerated in early July.
Negative concerns about the impact of tariffs have recently accelerated, rising from 15% in May, to 21% in June, and 38% in July. Among those in the top third of the income distribution (who account for half of consumer spending), 52% negatively mentioned the impact of tariffs on the economy in early July. The primary concerns expressed by consumers were a decline in the future pace of economic growth and an uptick in inflation. Among those who expressed negative views of the tariffs, the Expectations Index was 30.5 points below those who made no mention of tariffs, and in addition, the expected inflation rate was six-tenths of a percentage point higher. While consumers may not understand the intricacies of trade theory, they have substantial experience making decisions about the timing of discretionary purchases based on prospective trends in prices.
As a reminder, while soft survey data has been rebounding, hard real data continues to stagnate…
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