In the current environment of rising interest rates and high unemployment, consumer sentiment in the United States retreated from six-year highs made in July.
According to Thomson Reuters/University of Michigan’s preliminary reading, consumer sentiment plunged to 80, compared to June’s final reading of 85.1 — the best reading for the index since July 2007.
With economists expecting the index to reach an average of 85.5 this month, it was the first time consumer sentiment fell below estimates this year. In fact, the preliminary reading is the worst miss since records began in 1999.
During the last recession, the index averaged slightly above 64. In the five years before the financial crisis, it averaged almost 90. Consumer sentiment is one of the most popular measures of how Americans rate financial conditions and attitudes about the economy. The University of Michigan’s Consumer Survey Center questions 500 households each month for the index.
The reading on current and future conditions hit its lowest level in four months. Current economic conditions, which measure whether Americans think it is a good time to make large investments, fell from 98.6 to 91. Meanwhile, consumer expectations declined to 72.9 in August, compared to 76.5 in July.
Richard Curtin, the survey’s director, said in a statement, “Perhaps the most important recent changes have been the increase in home values as well as the jump in the numbers that expect interest rate increases during the year ahead.”
When confidence declines, consumers often become more price-conscious and reduce their spending. Earlier this week, Wal-Mart (NYSE:WMT) and Macy’s (NYSE:M) both reported weak results for their most recent quarters. Wal-Mart expects sales to remain slow, while Macy’s lowered its profit forecast for the year. Both retailers noted slow traffic in stores.
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