Economy Watch: Consumers Less Optimistic, But Still Likely to Spend

The University of Michigan Survey of Consumers chief economist posited that rising concerns about the U.S. economy contributed to the drop in consumer optimism this June.
Credit: The University of Michigan Survey of Consumers, June 2016
Credit: The University of Michigan Survey of Consumers, June 2016

Consumers were a bit less optimistic in late June than a month earlier, according to the University of Michigan on Friday. The university’s Consumer Sentiment Index came in at 93.5 in June, compared with 94.7 in May, a drop of a little more than 1 percent.

Richard Curtain, the Survey of Consumers’ chief economist, posited that the change was due to rising concerns about prospects for the national economy (and presumably before any Brexit worries were factored in). “While no recession is anticipated, consumers increasingly expect a slower pace of economic growth in the year ahead,” he said.

Even so, the persistent strength in personal finances will keep the consumer spending at relatively high levels and continue to support an economic expansion, which will also support retailers. Over the past 18 months, the Sentiment Index has shown only minor fluctuations around a positive trend, with the June 2016 level a bit higher than the overall average (93.5 vs. 92.6).

The Current Conditions Index in the June survey reached its highest level since January of 2007, while the Expectations Index declined 9.5 percent from its January 2015 peak. Although the data are consistent with GDP growth falling slightly below 2 percent in 2016, Curtin said, real consumer spending can be expected to rise by 2.5 percent in 2016 and 2.7 percent in 2017.