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First Cut: Preliminary September Consumer Sentiment Index gives back some of August’s weakening

The preliminary University of Michigan Consumer Sentiment Index gave back some of the decline in August, rising to 92.0 after 89.8 in the prior month which represented a sharply lower level than the 98.4 in July. Consumer have had a chance to digest some of the negative news cycle and adjust to the prospect of slower growth. Leavening the worries about a potential recession are good things for household finances like gasoline prices continuing to decline and anticipation of lower interest rates that will make borrowing cheaper for big ticket items like cars and homes. The report noted that the index is at “the third lowest level since Trump’s election”.  The reading is not a bad one in the historical context, but it does suggest that consumers have lost the optimism that greeted the election results and buoyed the economy in the following two years.

The component for current conditions was up to 106.9 in September from 105.3 in August, only a modest improvement. Discounting the August number, the reading is the lowest since 105.9 in November 2016. The six-month expectations index rose a bit more firmly to 82.4 after 79.0. Apart from the August data, the index is the lowest since 80.5 in July 2017.

The 1-year measure of inflation expectations was up a tenth to 2.8% in September, its firmest reading since 2.9% in May. The increase came in spite of falling gasoline prices which suggests that in the short-term, consumers are seeing other sources of upward pressure on costs. The 5-year inflation expectations measure was down three-tenths in September to 2.3%, at the bottom of the recent trend range of about 2.3%-2.6% and matching the series low. Inflation expectations are generally soft, but have not yet come unanchored.

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