The overall level of consumer confidence edged upward in July despite higher gasoline prices and the terrorist bombings in London, according to the latest Survey of Consumers by the University of Michigan.
“The highest overall level of consumer confidence was recorded during the past two months since the last economic downturn started nearly five years ago,” according to Richard Curtin, the director of the University of Michigan survey. High gas prices did diminish confidence, but these declines were offset by other factors. “High gas prices had a larger impact on the living standards of lower-income households, while upper-income households were more likely to expect other economic gains to overcome the drain of gas prices,” Curtin said.
The survey data indicated that the London bombings had no direct impact on consumer confidence. Overall, the data indicate that real consumer spending will grow by 3 1/2 percent during the year ahead.
The index of consumer sentiment was 96.5 in the July 2005 survey, just above the 96 in June but well above the 86.9 recorded in May. Overall, the sentiment index has now regained nearly all the entire loss since last July’s 96.7. The index of consumer expectations, a closely watched component of the index of leading economic indicators, rose to 85.5 in the July 2005 survey, up slightly from 85 in June but well above the 75.3 in May. The expectations index still remained significantly below last July’s reading of 91.2. In contrast, the current economic conditions index was 113.5 in July 2005, well above last July’s reading of 105.2.
The July survey recorded very positive buying attitudes toward homes, vehicles and large household durables. “Price discounts prompted a record number of consumers to voice favorable buying plans toward vehicles and household durables. Home-buying plans, in contrast, gained strength from the expectation that home prices would rise even more in the future,” Curtin said. The availability of vehicle price discounts were mentioned more frequently when consumers were asked to explain their views on vehicle buying in the July 2005 survey than at any other time in the 50-year history of the surveys. In contrast, when asked about their views on home buying, high home prices were cited more frequently and low home prices less frequently than anytime in the past 20 years.
The majority of consumers reported improved conditions in the national economy in the July survey, and the majority anticipated continued favorable conditions during the year ahead. Consumers now hold slightly lower expectations for economic growth during the year ahead and expect a slightly lower growth rate in job creation. “Although consumers no longer expect declines in the unemployment rate, the majority of consumers expect the unemployment rate to remain unchanged at its current 5 percent level during the year ahead,” Curtin said.
Consumers were more optimistic about their future financial position in the July survey, regaining all of the losses recorded since the start of 2005. The gain was due to more favorable income expectations as well as a lower expected inflation rate.
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