Consumer confidence cooled this month, according to new data from the University of Michigan. Specifically, the headline sentiment gauge fell from 98.2 to 97.1 in the first half of July. That was worse than expected and the lowest reading since the start of the year, although still well above pre-election levels. Surveyed Americans’ views of both current and future economic conditions deteriorated this month, with the report’s authors attributing most of the weakness to concerns about U.S. trade policy. Moreover, 38 percent of consumer respondents spontaneously mentioned a potential negative impact from tariffs this month, up sharply from 15 percent in May.
Such worries were greater among higher earning Americans but all income groups that expressed concerns generally feared that tariffs will hurt the future pace of economic growth and cause an uptick in inflation. Survey of Consumers chief economist Richard Curtin stressed that “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.” A good example of this is how Americans have almost instantaneously responded to the recent rise in gasoline prices by driving less. Eventually, though, inflation could hit a point where it starts to become a more substantial drag on broader consumer spending, yet another reason why a full on trade war should try to be avoided. Mr. Curtin added that sentiment remains elevated thanks to “favorable job and income prospects,” but warned that “the planned expansion of tariffs on Chinese goods could further escalate consumers’ concerns about the impact on their own financial situation and purchases.”
Sources: Econoday, UoM, Bloomberg, FRBSLPost author: Charles Couch