Consumer sentiment showed a notable improvement in early June, as Americans appeared to temper their concerns about the economy and rising inflation, according to a survey conducted by the University of Michigan and released on Friday.
The university’s influential Surveys of Consumers revealed widespread rebounds from previous pessimism, with participants significantly lowering their near-term inflation expectations.
The consumer sentiment index registered at 60.5, surpassing Dow Jones predictions of 54 and reflecting a substantial 15.9% increase compared to the previous month. The index measuring current conditions increased by 8.1%, while future expectations surged by 21.9%.
This upswing aligns with a de-escalation in the charged language surrounding President Donald Trump’s tariffs. Following Trump’s “liberation day” announcement on April 2, which included a call for a 90-day negotiation period, early signs of progress have emerged, particularly in interactions with China, a key trading partner.
“Consumers appear to have settled somewhat from the shock of the extremely high tariffs announced in April and the policy volatility seen in the weeks that followed,” stated Joanne Hsu, the survey director. “However, consumers still perceive wide-ranging downside risks to the economy.”
It’s important to note that while sentiment has improved, all the indexes remain significantly below levels from a year ago, as consumers express concern over the potential effects of tariffs on prices, among other geopolitical issues.
On the topic of inflation, the one-year forecast dropped to its lowest levels since 1981, falling to 5.1%, which is a decline of 1.5 percentage points. The five-year outlook also decreased slightly to 4.1%, down by 0.1 percentage points.
“Consumers’ fears about the potential impact of tariffs on future inflation have softened somewhat in June,” Hsu observed. “Still, inflation expectations remain above levels recorded in the latter half of 2024, illustrating concerns that trade policies could still lead to inflationary pressures in the coming year.”
The Michigan survey stands out in a landscape where other metrics suggest a more constrained outlook on inflation. Earlier this week, the Federal Reserve of New York revealed that its one-year inflation expectation had reduced to 3.2% in May, down by 0.4 percentage points from the previous month.
Additionally, the Bureau of Labor Statistics reported a modest monthly increase of just 0.1% in both producer and consumer prices, indicating limited upward effects from the tariffs. Economists generally anticipate that the tariffs will reveal a more significant impact in the months ahead.
The muted inflation readings have prompted Trump and other officials in the administration to advocate for a reduction in interest rates by the Federal Reserve. The central bank is scheduled for a meeting next week, with market forecasts suggesting that cuts are unlikely before September.
