While consumer sentiment reached a six-year high in July it retreated during August. Americans appeared to be more upbeat in their outlook than they were earlier in the month, a Friday survey indicated.
According to the Thomson Reuters/University of Michigan’s final reading for the overall index of consumer sentiment slipped from 85.1 in July to 82.1 in August. Despite the drop, the final result did manage to top the reading of 80 at the middle of the month and beat the expectations of the economists hitting a final read of 80.5.
Households with incomes lower than $75,000 grew more pessimistic about the future. All households indicated they expect higher interest rates over the next year and slightly slower growth. Those opinions helped drive the gauge consumer expectations from 76.5 to 73.7. The survey’s barometer of current economic conditions slipped from 98.6 in July to 95.2 in August.
During the last three months long term interest rates have risen by more than a full percentage point in fear of the Federal Reserve starting to scale back the bond buying programs as soon as September. Mortgage rates have been pushed up. Economists have indicated that they fear consumer sentiment will continue to weaken if higher interest rates start to slow in momentum in a housing revival that has been one of the brightest segments in the overall recovery for the nation.
The one-year inflation expectation fell from 3.1 percent to 3 percent while the five to 10-year inflation outlook edged up to 2.9 percent from 2.8 percent.
Consumer sentiment is important when it comes to gauging the economy. The better the public feels about the overall economic situation and the economy, the more likely they will spend money. When people are spending money, the economy continues to improve. There are more goods being consumed and the result is more job security. Spending can also create additional jobs.
During July more Americans felt confident about the situation and felt better about making purchases and spending their money. The confidence is shifting and more people are now holding on to their money because they are uncertain about the situation.
Consumer sentiment is the statistical measurement and economic indicator that describes the overall health of the economy as it is determined by consumer opinion. Consumer sentiment takes into account the feelings of an individual toward his own financial situation as well as the economy’s short term financial outlook and the prospects for longer term economic growth.