Consumer sentiment in the U.S. has unexpectedly seen a significant deterioration in the month of July, according to preliminary data released by the University of Michigan on Friday.
The report showed the consumer sentiment index slumped to 80.8 in July from 85.5 in June. The decrease surprised economists, who had expected the index to inch up to 86.5.
Surveys of Consumers chief economist Richard Curtin said the unexpected drop by the headline was largely due to less favorable prospects for the national economy, with the index of consumer expectations tumbling to 78.4 in July from 83.5 in June.
“This decline was caused by a misjudgement by consumers in the pace that the economy would recover as the pandemic eased,” Curtin said. “This involved both underestimating the economy’s ability to reactivate supply lines and restore jobs, and the resulting impact on inflation.”
“Rather than job creation, halting and reversing an accelerating inflation rate has now become a top concern,” he added, noting that inflation has put added pressure on living standards and caused postponement of large discretionary purchases.
One-year inflation expectations jumped to 4.8 percent in July from 4.2 in June, while five-year inflation expectations inched up to 2.9 percent from 2.8 percent.
The report also showed a notable decrease by the current economic conditions index, which slid to 84.5 in July from 88.6 in June.
“Small policy steps could now have a large impact on ending inflationary psychology,” Curtin said. “A slight increase in interest rates would be no surprise to consumers as 70% expected an increase in early July.”