Consumer sentiment dropped 5 percent in July due to inflationary concerns, according to a July University of Michigan Consumer Sentiment Index.
However, the report also showed that consumers are more optimistic than last year during stricter measures public health officials said were needed to control the spread of Covid-19.
Consumer sentiment was 81.2 in July, according to the University of Michigan Consumer Sentiment Index, 4.3 points lower than June but still 8.7 points above the July 2020 index. The Current Economic Conditions Index fell 4.1 points from the previous month to 84.5, although it remains 1.7 points above 14 months ago. The Consumer Expectations Index decreased 4.5 points to 79 but is 13.1 points higher than July 2020.
“Consumer sentiment edged upward at the end of July, although it still posted a monthly decline of 5 percent,” said Richard Curtin, chief economist at the University of Michigan Surveys of Consumers. “The largest monthly declines remained concentrated in the outlook for the national economy and complaints about high prices for homes, vehicles and household durables. While most consumers still expect inflation to be transitory, there is growing evidence that an inflation storm is likely to develop on the not-too-distant horizon.”
Curtin said improvements in consumer finances “have greatly reduced their resistance to price increases, while firms have reacted to their own supply and labor shortages with a greater readiness to increase prices as well as wages. Consumers and firms currently justify their actions as temporary adjustments due to the pandemic.” In Curtin’s view, current monetary and fiscal policies — coupled with the possibility of continued accommodations — encourage consumers and firms to act in ways that escalate the spike in prices and wages.
“The beneficial reduction in income inequality will shift more money to those who have higher propensities to spend, and thus energize demand,” Curtin said. “The booms will end in the same way as usual: Rising prices will eventually outdistance wage gains, lowering living standards and cause an economy-wide retrenchment in spending.”
South Dakota Bankers Association President Karlton Adam said sales tax revenue has met budgeted expectations statewide as South Dakota has remained open throughout the pandemic while other states undertook shelter-in-place orders. Customers continue spending, and Adam noted that people who have lost positions have found new jobs. Certain sectors, like the construction and recreational industries, cannot keep up with the rapid pace of purchases.
As Covid-19 delta variant continues to spread, 58 percent of South Dakotans ages 12 and up have received vaccines. Adam said not enough South Dakotans have been vaccinated to completely eliminate the spread of the disease, so he is advocating for more people to receive doses.