While Current Conditions surged back near cycle highs, ‘hope’ for the future slid to its lowest since January according to June’s final University of Michigan sentiment survey, leaving the headline print very modestly higher.
Notably after a few months of high-income disappointment (and low-income exuberance), June saw things flip as sentiment for the richest rose and poorest fell…
Finally, we note that short-term inflation expectations surged to 3.00% – the highest since August 2014.
UMich also did a survey of Trade War expectations.
The potential impact of tariffs on the domestic economy was spontaneously cited by one-in-four consumers, with most expecting a negative impact on the domestic economy (21% out of 26%).
The primary concerns were a downshift in the future pace of economic growth and an uptick in inflation.
Among those who expressed negative views of the trade policies, the Expectations Index was 22.7 points below those who made no mention of tariffs and the expected inflation rate was three-tenths of a percentage point higher. A longstanding belief of consumers is that trade with other countries results in a broader range of available goods at lower prices. When asked in a recent survey about their views on international trade, two-thirds of consumers thought that more trade with other countries would be better for the domestic economy (see the chart above).
To be sure, consumers’ judgements about the impact of higher tariffs will not crystalize until they have experienced actual changes in product prices and heard about changes in employment. While tariffs may have a direct impact on only a very small portion of overall GDP, the negative impact could quickly generalize and produce a widespread decline in consumer confidence and optimism. The June survey offers a glimpse into the potential reactions of consumers to rising tariffs and suggests that the timing and size of the loss in confidence could be quick and substantial.
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