A recent survey conducted by the University of Michigan revealed a modest increase in U.S. consumer sentiment for the month, with the consumer sentiment index rising to 67.8 from 66.4 in July. The uptick was primarily driven by a surge in optimism among Democrats regarding Vice President Kamala Harris.
While Americans' expectations for the future saw an improvement, their assessment of current economic conditions experienced a slight decline. Notably, the survey indicated a shift in preferences, with 41% of consumers viewing Harris as the better candidate for the economy compared to 38% who favored Republican nominee Donald Trump.
The rebound in the Michigan index comes after hitting a low of 50 in June 2022 amidst soaring inflation rates, marking a significant recovery. However, the index still remains below pre-pandemic levels when it regularly exceeded 90 and occasionally surpassed 100.
Consumer sentiment serves as a crucial indicator for economists to gauge consumer behavior, as consumer spending contributes to approximately 70% of U.S. economic activity. Despite prevailing concerns over inflation and rising prices, Americans have continued to spend, propelling the economy to a healthy 2.8% annual growth rate in the second quarter of the year.
Recent data from the Commerce Department revealed a notable 1% increase in retail sales from June to July, marking the largest surge since January 2023. Strong sales were reported across various sectors including electronics shops, supermarkets, and auto dealerships.
In response to the resurgence of inflation, the Federal Reserve has raised its benchmark interest rate 11 times in 2022 and 2023, reaching a 23-year high. However, inflation has shown signs of cooling off, declining from a peak of 9.1% in June 2022 to 2.9% last month, inching closer to the Fed's target of 2%.
Looking ahead, the Federal Reserve is widely anticipated to commence rate cuts at its upcoming meeting in September, reflecting ongoing efforts to manage inflation and support economic stability.
