Following reports that the Reuters/University of Michigan consumer sentiment index had fallen significantly from 79.3 in May to 74.1 in June, economists offered commentary on the meaning behind the numbers. In addition to the consumer sentiment index, the current conditions index reportedly fell from 87.2 in May to 82.1 in June, while the expectations index declined to 68.9 this month from 74.3 the month before.

A breakdown

“This is not a good report. Consumer confidence is back in recession territory. The news from the retail sales report is clearly indicating that consumers are cautious and holding back….The Reuters/University of Michigan consumer sentiment index fell in mid-June to its lowest level since

December. Consumers are more pessimistic across the board. A considerable deterioration on job prospects and household net worth are taking their toll on consumer mood.”

Yinbin Li, IHS Global Insight Principal Economist

“The negative impact on sentiment from the pull back in stock markets in the last two months, driven by the turmoil in Europe, outstripped the positive from the sharp fall in gasoline prices. The recent slowdown in job creation and the continuous uptick in the weekly jobless claims figures has cast a cloud on the strength of the overall recovery. The drop back in the headline index was the first in nine months and was in line with the recent falls in other consumer confidence indices.”

Amna Asaf, Capital Economics Economist

On the upside

“The one piece of good news is that pump and food prices have fallen. Falling gasoline prices offered positive support for the Reuters/University of Michigan consumer sentiment index in April and May.”

Li, IHS Global Insight

Looking ahead

“IHS Global Insight is now forecasting consumer spending (adjusted for inflation) to grow 1.7% in the second quarter, significantly lower than the first quarter’s 2.7% gain.”

Li, IHS Global Insight