University of Michigan survey results show Current Economic Conditions plunged to 103.5 – the lowest since Oct 2015. The biggest driver of this weakness is tumbling inflation expectations (with 1Y outlook dropping to 2.3% – the lowest since Sept 2010).
Confidence was unchanged in early September from the August final and barely different from the July reading. Small and offsetting changes have taken place in the third quarter 2016 surveys: modest gains in the outlook for the national economy have been offset by small declines in income prospects as well as buying plans.
While income gains expected during the year ahead have edged upward, declines in inflation expectations were the main reasons future financial prospects improved, as both near and long term inflation expectations fell to near record lows. Nonetheless, buying plans suffered from the perception that no additional price discounts would be offered. Even the more optimistic outlook for the economy had little if any impact on the expected growth rate in new jobs. Importantly, all of these changes were relatively minor. Overall, consumers remain reasonably optimistic about their economic prospects. Real personal consumption expenditures can be expected to grow by 2.6% through mid 2017.
Despite the highest Core CPI since Lehman, inflation expectations tumble…
The surveys continued to track which candidate consumers expected to win the presidential election – not who they intended to vote for or favored – to determine how the expected winner would influence their economic expectations. Clinton was expected to win, although by a slightly narrower margin over Trump in early September (+37 percentage points, down from +43 in August, but well above the +27 in July and +14 in June). Those who expected a Clinton victory had a significantly higher Expectations Index (+20.2 Index-points in September, up from +17.4 in August, +13.1 in July and +7.2 in June).
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