The University of Michigan’s consumer sentiment index slightly rose this month to 67.8, up from 66.4 in July. This increase in optimism among Democrats regarding Vice President Kamala Harris played a role in boosting consumer sentiment in the U.S. Americans’ outlook for the future improved, although their view of current economic conditions saw a slight decline.
According to the survey, Democrats’ confidence increased while Republicans’ sentiment dropped. The survey showed that 41% of consumers believed Harris would be a better candidate for the economy compared to 38% who favored Republican nominee Donald Trump. Prior to President Joe Biden leaving the presidential race and being succeeded by Harris, Trump had the upper hand on this issue.
The Michigan index had hit a low of 50 in June 2022 during a period of high inflation. Although it has rebounded since then, it still remains below healthy levels. Before the economic impact of COVID-19 in early 2020, the Michigan index consistently scored in the 90s and occasionally surpassed 100.
Economists monitor the sentiment of Americans to assess their willingness to spend, a crucial factor as consumer spending contributes to approximately 70% of U.S. economic activity. Despite feeling discontent due to inflation for over three years, American consumers have continued to spend. This consistent spending has contributed to the economy growing at a solid pace of 2.8% annually from April to June.
In response to the resurgence of inflation, the Federal Reserve raised its benchmark interest rate 11 times in 2022 and 2023, reaching a 23-year high. Inflation has decreased significantly since reaching a peak of 9.1% in June 2022, dropping to 2.9% by the recent months, nearing the Fed’s 2% target. The Federal Reserve is now expected to start reducing rates at its upcoming meeting in September.
