Economy Watch: Consumers Seem Nervous About Brexit

U.S. consumer sentiment took a dip in early July.

The University of Michigan reported on Friday that U.S. consumer sentiment took a dip in early July, with its Index of Consumer Sentiment coming in at 89.5, compared with 93.5 at the end of June. Moreover, the Index of Consumer Expectations was 77.1 in mid-July, compared with 82.4 at the end of June.

What rattled consumers? “The early July decline in consumer sentiment was due to increased concerns about prospects for the national economy that were mainly voiced by high-income households,” noted Surveys of Consumers chief economist, Richard Curtin, adding that before the Brexit vote, virtually no consumer thought the issue would have the slightest impact on the U.S. economy.

Following the Brexit vote, however, it was mentioned by record numbers of consumers, especially high-income consumers. Nearly one-in-four (24 percent) households with incomes in the top third mentioned Brexit when asked to identify any recent economic news that they had heard. For these households, the initial impact on domestic stock prices translated Brexit into personal wealth losses, though the markets’ panic reaction wasn’t the beginning of a stock crash or even a minor correction, and quickly recovered.

Indeed, it’s possible that highly covered Brexit was merely the economic worry du jour for consumers, who have generally been on edge during the post-recession years. In fact, Curtin pointed out, “the overall decline in the Sentiment Index was rather minor, and could be anticipated to recover some of those losses in late July or early August. Importantly, the least affected components have been personal finances and buying plans.” Retailers ought to be glad to hear that.