Economy Watch: Americans Still Optimistic About State of the Economy

The University of Michigan's Consumer Sentiment Index declined slightly in July, but this decrease was offset by favorable views about current economic conditions, which reached their highest level since July 2005.

Source: University of Michigan Surveys of Consumers, July 2017
Source: University of Michigan Surveys of Consumers

Consumer confidence at the end of July remained largely unchanged at the same favorable level posted at mid-month, the University of Michigan reported on Friday. The overall Sentiment Index has declined by 5.1 points since the January peak, but that was the highest level in a dozen years. Optimism is one of the main drivers of a consumer economy, and can be particularly good for retailers in the short run and office and hospitality space in the longer run, if the optimism is sustained.

The relatively small decline in July still left the Sentiment Index higher in the first seven months of 2017 than in any other year since 2004, Surveys of Consumers Chief Economist Richard Curtin said. The size of the decline was tempered by record favorable views of Current Economic Conditions, which rose to its highest level since July of 2005.

Reasons for optimism

People are feeling better about current condition mainly due to improvements in personal finances. At the same time, consumers expressed less optimism about future prospects for the economy as well as for their personal finances. The Expectations Index fell from 90.3 in January to a still-positive 80.5 in July; if it continues to decline by another 10 points in the second half of 2017, the loss would become more worrisome, Curtin posited.

Separately, the Bureau of Economic Analysis reported on Friday a reason for Americans to be slightly more cheerful: Real gross domestic product increased at an annualized rate of 2.6 percent in the second quarter of 2017, according to the bureau’s advance estimate, which is usually (but not always) revised upward later. In the first quarter, real GDP increased only an annualized 1.2 percent.