Consumers See Prices Dropping—And They Feel Better About the Economy
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Key TakeawaysThe Michigan Consumer Sentiment Index improved to 69 in September, moving higher for a second straight month and coming in above economists' expectations. Consumers said they felt better about their personal finances and the economy in September, but their views on the labor market softened.Inflation expectations fell, with consumers anticipating better prices for big-ticket items.
Consumers felt better about inflation in September, with some seeing improved prices for big-ticket items, a closely watched sentiment survey showed.The Michigan Consumer Sentiment Index moved up to 69 in the preliminary September results, moving higher for the second straight month as survey respondents had better expectations for both the economy and their personal finances. Economists surveyed by TheWall Street Journal and Dow Jones Newswires were expecting a more modest 68.4.“The gain was led by an improvement in buying conditions for durables, driven by more favorable prices as perceived by consumers,” said Joanne Hsu, director of the University of Michigan Surveys of Consumers. Hsu said that consumers perceived some softening in the labor market. Job growth in August was lower-than-expected. “Consumers are dialed in to the economy more than usual, feeling the effects of the lower goods prices and the softening jobs market,” said Robert Frick, corporate economist with Navy Federal Credit Union.Inflation Expectations Move Lower for Fourth MonthConsumer sentiment has been lifted by a decline in inflation and now stands roughly 40% higher than its June 2022 low, when inflation as measured by the Consumer Price Index (CPI) peaked at more than 9%. The August CPI, the most recent reading, has moderated to an annual rate of 2.5%.Inflation expectations fell for a fourth straight month, with consumers now seeing prices rising 2.7% over the next year, the lowest reading since December 2020 and around pre-pandemic levels.Federal Reserve officials closely follow consumer inflation expectations, which can turn into self-fulfilling projections as wage-payers and price-setters will act on where they perceive prices are going to go. Fed Chair Jerome Powell has said that consumers’ perceptions of inflation is one reason that price pressures have been easing this year. Economists believe that the central bank will lower interest rates at its meeting next week.Compared to the Conference Board’s similar Consumer Confidence Index survey, which is more sensitive to the labor market, the Michigan survey is more influenced by prices and inflation. Read the original article on Investopedia.
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