WASHINGTON – Consumer confidence declined in July on concerns global risks will dim prospects for the U.S. economy.
The University of Michigan’s preliminary index of sentiment dropped to 93.3 during the month from 96.1 in June, figures showed Friday. The median forecast in a Bloomberg News survey of economists called for a reading of 96. Consumers remained upbeat about employment and wages.
“When asked to explain how their finances had changed, more households mentioned income gains,” with the share increasing to 38 percent this month from 32 percent in June, Richard Curtin, director of the Michigan Survey of Consumers, said in a statement. “Slowly improving finances were anticipated for the year ahead.”
The Greek financial crisis and a slowdown in China were mentioned by respondents in the survey and help explain why Americans were less upbeat about the domestic economy. Even with the decline in sentiment, July marks the eighth straight month the Michigan gauge has been above 90, the longest stretch since a 17-month period ended in early 2005.
The decline in sentiment this month was due to less optimism among households with incomes under $75,000.
The survey’s gauge of expectations six months from now fell to 85.2 from 87.8 in June. The gauge of current conditions decreased to 106 from 108.9 last month.
Attitudes toward big purchases, such as houses, were little changed in July from “very favorable levels” a month earlier, Friday’s report showed. Low home prices and borrowing costs were noted by 86 percent of all consumers.
“What we’re really missing in this recovery, especially among the bottom half of the income distribution, is more robust wage increases that consumers are certainly in dire need of to support their continued expansion in spending,” Curtin said on a Bloomberg conference call.
Inflation expectations
Americans expected an inflation rate of 2.8 percent in the next 12 months, up from 2.7 percent a month earlier, the report showed. Over the next five to 10 years, they also anticipated a 2.7 percent rate of inflation compared with 2.6 percent in the previous month.
The cost of living rose in June for a fifth month, paced by increases in rents. The consumer-price index climbed 0.3 percent after a 0.4 percent May gain, the Labor Department said Friday. Costs over the past 12 months advanced for the first time this year.
Bloomberg survey
The Michigan report corroborated the Bloomberg Consumer Comfort Index, which saw optimism fade in the past two weeks after recouping half of its 7.8 point decline in June. Americans’ views about their finances retreated for the first time since May.
This pause in optimism could be explained by more stable prices at the gas pump, volatility in the stock market during the Greek financial crisis and scant signs of a bigger pick up in wage growth.
Average hourly earnings at private employers was up 2 percent over the 12 months ended in June, in line with the average since the current expansion started in 2009, figures from the Labor Department showed.
Employers are confident enough to keep beefing up headcounts. Payrolls rose 223,000 in June after a 254,000 increase a month earlier, while the jobless rate fell to a seven-year low of 5.3 percent.
Steady costs to fill up at service stations are enough to underpin sentiment. The nationwide average price of a gallon of gasoline has been less than $2.80 since mid-June, based on data from the motoring group AAA.
While Americans are paying less for fuel than a year ago, some are pocketing the savings rather than spending it. Retail sales unexpectedly declined 0.3 percent in June after a 1 percent May advance, according to the latest Commerce Department data.
Such stop-and-go demand helps explain why the Federal Reserve is waiting for a sustained pickup in growth before raising rates, which may happen as soon as September.
