Stock Market Alert: The Consumer Sentiment Report Is Coming July 14

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The University of Michigan’s July consumer sentiment report is due out this Friday, July 14 — and its potential effects on the stock market may be significant. As investors remain anxious over the possibility of a recession-in-the-making, this Friday’s report may offer some much-needed insight into the matter. Depending on the results, equity markets could make a substantial shift for better or for worse.

What should you expect out of this Friday’s report?

Well, given the optimistic nature of last month’s Survey of Consumers, investors will likely be looking for a continued trend.

If you recall, the Survey of Consumers jumped substantially in June. Indeed, the Index of Consumer Sentiment rose about 9% from May, reading uniform improvements across all demographic groups. This included a 28% increase in the year-ahead economic outlook and an 11% jump in long-run expectations.

Surveys of Consumers Director Joanne Hsu had some optimistic remarks for the results of last month’s report:

“Overall, this striking upswing reflects a recovery in attitudes generated by the early-month resolution of the debt ceiling crisis, along with more positive feelings over softening inflation. Views of their own personal financial situation were unchanged, however, as persistent high prices and expenses continued to weigh on consumers.”

Perhaps most importantly, year-ahead inflation expectations fell for a second-straight month in June, down to just 3.3% from 4.2% in May. This represents the lowest reading for the metric since the spring of 2021. While long-run inflation expectations held relatively steady — in the 2.9% to 3.1% range — they “remained elevated relative to the 2.2-2.6% range seen in the two years pre-pandemic.”

University of Michigan’s Surveys of Consumers represents one of the strongest metrics offering insight into the state of everyday Americans. As such, it’s very important alongside other notable metrics like unemployment and inflation.

Consumer Sentiment on the Climb in the Face of Falling Unemployment, Inflation

The recent increase in consumer confidence is no coincidence. Indeed, consumers seem to be feeling the effects of relatively strong economic conditions recently.

This, of course, includes important metrics like unemployment and inflation. From April to May of this year, prices rose just 0.1% according to the Consumer Price Index (CPI), representing annual inflation of just 4%. This is less than half the 9% peak recorded in the summer of 2022. By all accounts, this is a major win for the Federal Reserve.

The central bank has been on a tireless campaign to lower prices over the past two years or so, passing rate hikes at nearly every policy meeting in order to curb Covid-19-stimulus-fueled inflation. The Fed has raised rates 10 times this cycle all in pursuit of its long-stated 2% inflation goal. While the 4% price level recorded in May isn’t quite 2%, the progress is both tangible and promising.

It’s worth noting that, although prices are undeniably lower, it’s largely attributable to falling energy prices, which are down nearly 12% from last May. Core inflation, which excludes volatile categories like Food and Energy, is still hovering at 5.3% as of May.

Unemployment has also been surprisingly strong. While the U.S. only added 209,000 jobs in June — below expectations of 225,000 net jobs — unemployment is still hovering at just 3.6%.

Economists have warned for months that the consequences of the Fed’s rate hikes would manifest in the form of a recession, likely in the second half of 2023. So far, however, the economy appears to be resistant to deterioration.

Heading into the upcoming consumer sentiment report, most economists are undeniably on recession-watch. Depending on the results, their fears may be dismissed — or woefully verified.

On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

With degrees in economics and journalism, Shrey Dua leverages his ample experience in media and reporting to contribute well-informed articles covering everything from financial regulation and the electric vehicle industry to the housing market and monetary policy. Shrey’s articles have featured in the likes of Morning Brew, Real Clear Markets, the Downline Podcast, and more.

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