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Real Estate

Consumers move past Brexit, now concerned with election outcomes

Still feeling slightly better about economy than July

The beginning of August shows hope for the economy as consumer sentiment increased slightly in the first two weeks of the month, according to the Preliminary Results for the Index of Consumer Sentiment released by the University of Michigan.

“The small rise in the University of Michigan measure of consumer confidence in August suggests that the weaker-than-expected July retail sales figures were a blip rather than the start of a more serious downturn,” Capital Economics Economist Andrew Hunter said.

The Index of Consumer Sentiment increased slightly to 90.4, up 0.4% from 90 in July, but down 1.6% from last year’s 91.9.

“Confidence inched upward in early August due to more favorable prospects for the overall economy offsetting a small pullback in personal finances,” said Richard Curtin, Survey of Consumers chief economist. “Most of the weakness in personal finances was among younger households who cited higher expenses than anticipated as well as somewhat smaller expected income gains.”

On the other hand, the current economic conditions decreased by 2.7% from last month to 106.1, down from 109 in July, but increased 1% from last year’s 105.1.

The Index of Consumer Expectations increased 3.2% from last month’s 77.8 to 80.3 at the beginning of August, but decreased 3.7% from last year’s 83.4.

From an article by Jill Mislinski for Advisor Perspectives:

To put today's report into the larger historical context since its beginning in 1978, consumer sentiment is 5.4% above the average reading (arithmetic mean) and 6% above the geometric mean. The current index level is at the 54th percentile of the 463 monthly data points in this series.

The Michigan average since its inception is 85.4. During non-recessionary years the average is 87.6. The average during the five recessions is 69.3. So the latest sentiment number puts us 20.7 points above the average recession mindset and 2.4 points above the non-recession average.

“Concerns about Brexit have faded amid rising references to the outcome of the presidential election as a source of uncertainty about future economic prospects,” Curtin said.

According to a special report by Redfin in June, 27% of homebuyers said this election will negatively affect the housing market.

“Home buying has become particularly dependent on low interest rates, with net references to low interest rates spontaneously mentioned by 48%, this figure has been exceeded in only two months in the past ten years,” Curtin said. “In contrast, low housing prices were cited by just 25%, the lowest figure in ten years.”

After a strong jobs report for July that beat economists’ expectations, mortgage rates are climbing up yet again, after a drastic drop last week back to near all-time lows. That being said, interest rates still remain near all-time lows.

“Overall, the data remains consistent with real personal consumption expenditures improving at an annual rate of 2.6% through mid 2017, with new and existing home sales also benefitting from low mortgage rates,” Curtin said.

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