Michigan Consumer Sentiment Improves With Higher Expectations

Though the overall economy has yet to make a convincing turn towards the better, the University of Michigan's June reading of consumer sentiment suggests a coming improvement in retail spending. The full-month index level rose slightly to 70.8, an improvement from the mid-month reading and up sharply from the November low. The figure was better than Consensus expectations for a reading of 69.0. Indeed, spending improvement is suggested since during the last ten years, there has been a 61% correlation between the level of sentiment and the growth in real spending during the next five months.

The current economic conditions jumped ten percent from May to its highest level since last September. The reading for current personal finances just about made up the May decline. however, it was the jump in the reading of current conditions for buying large household goods to the highest level since March of last year that powered the increase. Showing a huge increase was the reading of current conditions for buying a motor vehicle. Though conditions for buying a house slipped, the level remained up sharply from last year.

The expectations component of the index improved from the mid-month reading and was up by nearly half versus a year earlier. Expectations for personal finances jumped with higher stock prices. Though expected business conditions during the next year slipped, they remained up sharply from last year. Expected conditions during the next five years also slipped versus May but they were up sharply from one year ago.

The read of current conditions, conversely, deteriorated from mid-month but remained off its winter low. Buying conditions for large household goods were at their highest level since early last year but personal finances were viewed as flat.

The opinion of government policy, which may eventually influence economic expectations, fell this month after having jumped through May. It remained near the highest level since 2002. A reduced 24% of respondents thought that a good job was being done by government while 28% thought that a poor job was being done. Nevertheless, despite these monthly changes, the trend is still very much toward a favorable reading of policy actions.

Inflation expectations for the next year rose further to 3.9%. That compares to a low of 1.7% last December but remained down from a reading which was as high as 7.0% last May.

The University of Michigan survey data is not seasonally adjusted. The reading is based on telephone interviews with about 500 households at month-end; the mid-month results are based on about 300 interviews. The summary indexes are in Haver's USECON database with details in the proprietary UMSCA database.

Inflation and Monetary Policy from the Federal Reserve Bank of Richmond can be found here.

The State of our Interstates from the Federal Reserve Bank of Chicago is available here.