Research >> Economics
University of Michigan Consumer Confidence Preliminary July Results slightly higher to 98.4
Consumer sentiment remained largely unchanged in early July from June, remaining at quite favorable levels since the start of 2017. Moreover, the variations in Sentiment Index have been remarkably small, ranging from 91.2 to 101.4 in the past 30 months. 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. Given the heightened interest in Fed policy, it is of some interest to examine the relationship between consumers’ inflation expectations and the anticipated strength in the economy as well as prospective shifts in interest rates and unemployment. Inflation expectations were divided into three groups based on responses to the January to July 2019 surveys: those who expected a year-ahead inflation rate less than or equal to 0%, an inflation rate of 1% to 3%, and those who expected an inflation rate equal to or greater than 4% (see the chart). The Consumer Expectations Index falls as inflation expectations rise, signifying that consumers view higher inflation as a threat to economic growth. Higher inflation was related more frequently to rising interest rates and was associated with higher unemployment expectations. While the inflation-unemployment relationship is in the opposite direction of the Phillips curve hypothesis, that relationship is usually based on wage inflation, not overall inflation. Consumers’ views appear to be more consistent with the stagflation thesis, which holds that inflation and unemployment move in the same direction. This thesis is more consistent with how consumers process and organize diverse bits of news about the economy.
Posted: July 19, 2019 Friday 11:00 AM