There is still a long way to go, but American consumers are starting to feel better about the economy.
The University of Michigan monthly consumer confidence index reached 72.6 in July, the highest since September 2021.
By comparison, the index, which surveys individuals about their overall business situation and how they are doing financially, hit a record high in February 2020, just before the start of the COVID-19 pandemic. of 101.
However, the sentiment indicator has increased in eight of the last 11 months.
In an interview ahead of Friday’s announcement, index director Joanne Hsu said the tracker remains closely tied to inflation. With price gains slowing from June 2022 highs, it’s no surprise that sentiment is rebounding, he said.
“Many consumers are still gearing up for the possibility of an upcoming recession, but they’re changing their minds when they realize how cooling inflation is,” he said.
Su said consumers still consider current prices and spending too high. And the latest index readings show inflation expectations a year out are little changed from last month.
But inflation is not the only consideration. A strong labor market is also helping to lift sentiment, Su said. The unemployment rate is at a historical low of 3.6%. The so-called Misery Index, which is inflation plus unemployment, is now approaching pre-pandemic levels.
While there is a near unanimous agreement among economists that the United States is not in recession, some Americans, especially Republicans, do not seem to believe it.
Party affiliation is one of the strongest determinants of economic views, according to Hsu, with Michigan’s index now standing at 96.7 for Democrats and 49.3 for Republicans. (71.5 among independents).
Historically, individuals who left power in the White House and supported the party rated the economy lower than those who supported the president’s party, Su said.
In fact, the Michigan index shows that sentiment for all three parties is currently on an upward trend.
Still, the partisan gap is seldom this deep, Su said.
Other polls show a similar breakdown.For example, Gallup find Overall, Americans rate the economy negatively, but in positive territory at -65 for Republicans, -35 for independents and +5 for Democrats.
Gallup senior editor Jeff Jones said it could take years for people to meaningfully change their minds about the economy, even with improved economic data. After the 2008 global financial crisis, it wasn’t until about 2012 that his views on the economy really improved, even though economic growth technically hit its bottom in the spring of 2009.
Earnings growth now outstrips inflation, but the increase in purchasing power is only a few cents. And the cumulative price increase after the pandemic is nearly 20%.
“Historically, we’ve seen people take time to realize that the economy is improving,” he said.
