With the welcome news that The University of Michigan’s measure of consumer confidence jumped, Ryan Sweet, Chief US Economist at Oxford Economics notes that the increase was more the expected. He notes that this is due to a "rise in stock prices, moderation in realized inflation, and low unemployment."
While the gain was the largest since 2006, he said his company "won’t be altering our near-term forecast for real consumer spending. The relationship between consumer sentiment and consumption is loose, at best, in the near term. Also, confidence is still noticeably lower than that seen prior to the pandemic."
While consumers’ assessment of current economic conditions improved between June and July, Sweet notes that there was also a gain in expectations, putting it at its highest level since the second half of the year.
"Easing concerns about a recession, which had been garnering a ton of headlines in the media for most of the year, may have helped push sentiment and expectation higher.." Sweet said. "Google Trend searches for “recession” have fallen. We use Google Trends to gauge what is on consumers’ minds.
While both short-and long-term inflation expectations edged higher, rising from 3.3% to 3.4%, he notes the increase "isn’t a cause for immediate concern as inflation expectations were at 4.6% as recently as April. Median 5-10 year inflation expectations rose from 3% to 3.1%. Overall, long-run inflation expectations have been fairly unchanged this year.
As for his take on what the Fed might do is as follows:
The minutes from the recent meeting of the Federal Open Market Committee showed that some policymakers were still concerned that inflation expectations could become dislodged because of the tight labor market. The hawkish rhetoric by the Fed and strong labor market have led us to add a 25-bps rate hike at the upcoming July meeting.
