The institution posted its July readings in a press statement on Saturday, with them being three percent lower than in June, when the index stood at 96.1. The reading was also lower than preliminary expectations which estimated it 93.3 or 93.4. However, the index is still over 90 for the eighth consecutive month, marking this the first time since 2005 that it had such an extended run above that threshold.
The University of Michigan Consumer Sentiment Index measures the degree of optimism with which consumers view the economy, as well as their personal financial situation. The scale is from 0 to 100 and it is calculated by conducting 500 telephonic interviews with consumers about their view on the state of the economy.
The director of the survey says that the dip is caused by consumer insecurity regarding income gains, which is normal as income stagnation has been regarded by many analysts as one of the key problems in the post-recession recovery of U.S. economy. And income gains also become quickly negated by inflation rise.
The consumer confidence slump was also probably influenced by a poor month for the stock market, which despite strong Q2 reports from technology giants was dragged down overall by weakness in China and a general lack of strong revenue figures or growth indicators.
Going into more detail, the confidence survey revealed the fact that the median increase expected at household level is of 1.8 per cent, which represents three times the figure from July 2014 and the highest level since the beginning of 2015. But less than a third of respondents were optimistic about the chance of getting a significant income gain in the next five years. Most of the respondents are also expecting the inflation to rise to 2.8 per cent on average over the next year.
Analysts are pointing out the fact that the strengthening trend of the job market will not make wonders for consumer confidence if it is double by the currently modest wage growth. Wage increases in Q2 2015 have been smallest recorded by the Labor Department since readings began in 1982, with salaries going up by only 0.2 per cent on average during the last financial quarter.
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