Consumer sentiment reverses course, inches up as election landscape changes

After four straight months of declines, consumer sentiment in August inched up 1.5 index points above July, according to the University of Michigan Surveys of Consumers.

[Link]Joanne Hsu

The economic outlook over both the short term and long term reached their most favorable levels since April 2024, with a 10% surge in long-run economic expectations that was seen across age and income groups, said U-M economist Joanne Hsu, director of the surveys.

Sentiment is currently 36% above the all-time historic low reached in June 2022.

"Despite these improvements, 47% of consumers blamed high prices for eroding their personal finances, a sign that prices remain a top concern," Hsu said. "Survey responses generally incorporate who, at the moment, consumers expect the next president will be.

"Some consumers note that if their election expectations do not come to pass, their expected trajectory of the economy would be entirely different. Hence, consumer expectations are subject to change in the months ahead as the presidential campaign comes into greater focus."

Election developments drive changes in expected economic outlook

Sentiment this month was driven by a modest improvement in sentiment by Independents, as Democrats and Republicans offset each other almost perfectly; Democrats reported a 10% increase while Republicans posted an equally sized decline.

These patterns reflect a sea change in election expectations this month with Harris emerging as the Democratic candidate for president, Hsu said. In July, 51% of consumers expected Trump to win the election versus 37% for Biden. In August, these figures flipped; 36% expected Trump to win compared with 54% for Harris.

With over two months remaining until the general election, economic expectations are subject to change as the election season progresses, she said.

Stock market developments exert little impact on sentiment

This month's stock market gyrations, led by the largest one-day drop in nearly two years seen on Aug. 5, had little net effect on consumer sentiment. Only consumers with the top tercile of stock holdings saw any declines in sentiment, down only 3% from last month.

In contrast, consumers with smaller holdings or no stock holdings at all reported increases in sentiment since July. These patterns are consistent with recent periods of financial turbulence, like the failure of Silicon Valley Bank in 2023, which similarly generated little movement in overall sentiment, Hsu said.

Consumer Sentiment Index

The Consumer Sentiment Index rose to 67.9 in the August 2024 survey, up from 66.4 in July and below last August's 69.4. The Current Index fell to 61.3, down from 62.7 in July and below last August's 75.5. The Expectations Index rose to 72.1, up from 68.8 in July and above last August's 65.4.

About the surveys

The Surveys of Consumers is a rotating panel survey at the University of Michigan Institute for Social Research. It is based on a nationally representative sample that gives each household in the coterminous U.S. an equal probability of being selected. Interviews are conducted throughout the month by phone. The minimum monthly change required for significance at the 95% level in the Sentiment Index is 4.8 points; for the Current and Expectations Index, the minimum is 6 points.

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