Americans gained confidence in the economy this month, a sign they could be willing to spend more in coming months and in turn boost the economy’s growth.
The University of Michigan said Friday its index of consumer sentiment rose to 90.4 in mid-August from 90 in July. Economists surveyed by The Wall Street Journal expected sentiment to rise to 92.
Economists pay attention to consumer sentiment because Americans often boost spending when they are feeling more upbeat. Consumer spending accounts for more than two-thirds of economic demand in the U.S.
Sentiment is lower than it was earlier this summer—the index hit 93.5 in June—but remains generally upbeat.
Details within the survey showed Americans lost confidence in the current state of the economy but boosted expectations for the economy in the months ahead. An index of how Americans feel about current economic conditions fell to 106.1 in August from 109 in July. But a measure of expectations rose to 80.3 from 77.8.
Richard Curtin, the survey’s chief economist, attributed the decline in feelings about current conditions to younger Americans reported pinched by higher costs and weaker income gains than they expected. He also said uncertainties loom despite fading worries about this summer’s U.K. vote to leave the European Union, known as Brexit.
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“Concerns about Brexit have faded amid rising references to the outcome of the presidential election as a source of uncertainty about future economic prospects,” he said in a statement. Still, he said the survey data suggest consumer spending should continue to rise healthily, at an annual rate of 2.6%, through mid-2017.
Mr. Curtin added that consumers are increasingly mentioning low mortgage rates as a factor behind higher home buying, which has been a strength in the economy. “Home buying has become particularly dependent on low interest rates,” he said.
The Federal Reserve is pondering how quickly to lift interest rates from historically low levels. Many economists expect the central bank to raise rates at least once this year amid signs of sturdy job growth. That in turn could lift mortgage rates, though any increases are expected to be small.
Meanwhile, Friday’s report also showed that Americans downgraded their expectations of where consumer prices are headed over the next year. Consumers expect inflation of 2.5% over the next year, the survey showed. A month earlier, they had expected inflation of 2.7%.
They still expect average inflation of 2.6% over the next five years—the same as they predicted in the prior two months’ surveys. Expectations of lower inflation can become a self-fulfilling prophecy, since Americans often adjust their spending behavior based on their outlook. That in turn influences the Fed’s decision makers as they ponder how quickly to lift interest rates.
Josh Mitchell at email@example.com