Are consumer sentiment and spending going in different directions? – 24/7, Wall Street.
According to the University of Michigan’s final July survey, consumer confidence rose 13% month-on-month in August to 58.2. This is still 17.2% below the level posted in August of last year. The main change came from consumer expectations, which rose 22.6% from 47.3 in July to 58.0 in August.
National average gasoline pump prices have been falling every day for two months, and nothing makes Americans feel better about the U.S. economy than falling fuel prices, just like nothing makes them feel more unhappy that the high fuel prices.
Survey director Joanne Hsu said while lower gasoline prices and slowing inflation brought relief to consumers in August, people continue to feel the weight of persistently high prices on their expenses.
“Hopefully this recent improvement continues as sentiment remains close to the all-time low reached in June. There’s still a long way to go before consumers really feel confident about the state of their personal finances and their economic prospects,” Hsu said.
Lower gasoline prices and consumer resilience led the bank’s consumer confidence indicator to drop from an all-time low in early July, according to a research note by economist Jeseo Park of BofA Global Research. at 31%. That’s still a far cry from a pre-pandemic reading of around 60%. The BofA index closely tracks Michigan’s Consumer Sentiment Index.
In their survey this month, BofA economists asked consumers for their views on the economic outlook. Almost two-thirds (66%) expect inflation to remain high over the next 12 months. More than a third (38%) expect a recession and 28% expect slower growth.
More than a third (35%) of those who expect a recession think the US economy is already in a recession, and 42% of survey respondents who earn between $125,000 and $250,000 a year believe the he economy is already in recession. For this group, more than half (53%) said saving and investing was their biggest concern. At the other end of the pay scale, 28.7% of respondents who earn less than $50,000 or less per year are most concerned about job security. BofA comments: “Overall, our latest survey results still paint a very pessimistic consumer.”
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For specialty retailers and department stores, consumer spending, particularly on back-to-school apparel, has driven sales so far in August. Spending on clothing by high-income groups rebounded in August after several months of year-over-year declines.
Among low-income consumers, year-over-year spending was down 8% in mid-August, but up 18% from the same date in August 2019. Retail analysts of BofA, led by Lorraine Hutchinson, comment:
We attribute this to strong wage growth among the low-income cohort relative to negative real-wage growth among the high-income cohorts. The low-income consumer also improved their financial profile the most as a result of the stimulus. Low-income households also have a higher marginal propensity to consume, which means that a greater proportion of their income (which is now higher) is spent rather than saved.
Analysts, however, do not expect the trend to last beyond mid-September: “After that, we expect consumers will likely cut spending until the holiday season resumes in November. .”
The University of Michigan survey report noted that more than half of consumers expect their incomes to increase over the next year, with average gains of 2.3%. Only 18% expect their income growth to outpace inflation.