US-China trade war affects US consumer sentiment

US consumers shopping
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The Consumer-Sentiment index dropped from 98.4 in July to 89.8 in August, making this the biggest monthly decline since December 2012.

According to the University of Michigan Surveys of Consumers, personal financial expectations diminished, with households who expected financial gains declined from 36% in August to 44% in July.

Overall buying attitudes toward appliances, home electronics, and other household durables also reached their lowest level in five years.

“The recent decline is due to negative references to tariffs, which were spontaneously mentioned by one-in-three consumers,” said U-M economist Richard Curtin, director of the surveys.

On Sunday, September 1, the U.S. imposed 15% tariffs on several goods from China, including footwear and flat-panel televisions while as China started imposing new duties on U.S. crude.

“Compared with those who did not reference tariffs, consumers who made spontaneous negative references to tariffs also voiced higher year-ahead inflation expectations, more frequently expected rising unemployment, and expected smaller annual gains in household incomes,” said Curtin.

Consumer spending in July 

The decline in consumer sentiment is marked by the difference of data from the Surveys of Consumers and the report released by the U.S. Bureau of Economic Analysis, which shows that consumer spending increased by 0.6% in July 2019.

Government data shows that personal income rose 0.1 per cent in July after increasing 0.5 per cent in June. Its major component, wages and salaries, climbed by 0.2 per cent in July after increasing 0.5 per cent in June.

Current-dollar disposable personal income (DPI), after-tax income, had a 0.3 per cent increase in July after increasing 0.4 per cent in June. Meanwhile, spending on durable goods expands by 1.1 per cent in July after lack of movement in June.

“While the overall level of sentiment is still consistent with modest gains in consumption during the year ahead, the data nonetheless increased the likelihood that consumers could be pushed off the tariff cliff in the months ahead. This could result in much slower growth in consumption and the overall economy,” said Curtin.