The University of Michigan’s preliminary estimates reveal that US consumer confidence experienced a slight but significant rebound in August. This follows a July low, marking the lowest point since November 2023. The recent uptick in consumer morale is largely attributed to political developments, with Democrats registering a surge in confidence while Republicans saw a decline. Notably, inflation expectations remain at elevated levels, though they have shown some signs of stabilization. This suggests that while consumers are experiencing a temporary boost in confidence, concerns about inflation remain prominent.
The University of Michigan’s consumer sentiment index climbed from 66.4 to 67.8 in August, representing a 2.1% monthly increase. This outpaced economists’ predictions, as tracked by TradingEconomics, which anticipated a reading of 66.9. The sub-index for consumer expectations, which reflects consumer sentiment regarding the future, saw a more substantial jump, increasing from 68.8 to 72.1. However, the sub-index for current conditions, gauging present economic perceptions, fell from 62.7 to 60.9, reaching its lowest point since December 2022.
Inflation expectations for the upcoming year remained unchanged at 2.9%. This figure is still significantly higher than the Federal Reserve’s target of 2% and the pre-COVID range of 2.2% to 2.6%. Similarly, long-term inflation expectations remained stable at 3%.
Joanne Hsu, Director of the University of Michigan’s Surveys of Consumers, attributed the recent shift in sentiment to the political landscape. She noted that sentiment among Democrats climbed by 6% in the wake of Kamala Harris replacing Joe Biden as the Democratic presidential nominee. Conversely, Republicans experienced a 5% decline in sentiment this month. The survey also revealed that 41% of consumers view Harris as the more favorable candidate for the economy, while 38% favor Donald Trump.
Hsu further highlighted that expectations regarding personal finances and the five-year economic outlook have improved, with the latter reaching its highest level in four months. However, the survey also indicated that some consumers anticipate significant shifts in their economic outlook if their preferred election outcome does not materialize. This suggests that consumer confidence remains susceptible to changes in the political landscape as the presidential campaign intensifies.
Despite these developments, Hsu emphasized that inflation continues to be a top concern for consumers. She expects that consumer expectations will continue to fluctuate as the presidential campaign progresses, even as consumers anticipate a gradual stabilization of inflation.
The release of the Michigan Consumer Sentiment report had a notable impact on the financial markets. Stocks rebounded following the report, recovering from early-morning losses. By 10:30 a.m. in New York, the S&P 500, tracked by the SPDR S&P 500 ETF Trust SPY, was flat, while the tech-heavy Nasdaq 100, tracked by the Invesco QQQ Trust QQQ, was up 0.1%. If both indices close in the green on Friday, they will mark their seventh consecutive session of gains.
Gold, tracked by the SPDR Gold Trust GLD, rose 0.9% but pared gains slightly after the release of the Michigan Consumer Sentiment data, cooling from earlier highs of $2,500 per ounce. Treasury yields stabilized, and the dollar regained some ground, as the positive consumer sentiment data reduced the likelihood of significant rate cuts by the Federal Reserve.
