The gauge of future expectations declined to 80.2 from 83.9. On the other hand, the barometer for current economic conditions edged up to 113.2 from 112.5.
Americans expect the inflation rate to be 2.7 percent next year, higher than 2.6 percen in June. The 5-year expectation was also up at 2.6 percent from 2.5 percent.
Overall, the recent data follow the same pattern repeatedly recorded around past cyclical peaks: expectations start to post significant declines while assessments of current economic conditions continue to reach new peaks. To be sure, the data do not suggest an impending recession. Rather, the data indicate that hopes for a prolonged period of 3% GDP growth sparked by Trump's victory have largely vanished, aside from a temporary snap back expected in the 2nd quarter. The declines recorded are now consistent with just above 2% GDP growth in 2017. Much steeper declines in expectations typically precede recessions. The weakness in the Expectations Index in early July was concentrated among Republicans (falling to 108.9 from June’s 116.0 and February’s 120.1); Democrats continue to hold much less favorable expectations, although the Expectations Index among Democrats has markedly improved (to 63.2 from June’s 62.0 in June and 55.5 in February). Overall, the data indicate an annual gain of 2.4% in personal consumption during 2017.