In June, consumers showed improved optimism regarding the economy and inflation, driven by a perceived easing in the global trade war, according to a University of Michigan survey. The Surveys of Consumers revealed significant rebounds in consumer sentiment, with the headline index rising to 60.5—above Dow Jones’ estimate of 54 and reflecting a 15.9% increase from the previous month. Notably, the current conditions index increased by 8.1%, and future expectations surged by 21.9%.
This positive shift aligns with reduced aggressive language from President Donald Trump concerning tariffs, following his April announcement and a subsequent 90-day negotiation period that has shown some progress, especially in U.S.-China relations. Joanne Hsu, the survey director, noted that while consumers have adjusted somewhat to the initial shock of high tariffs, they continue to perceive significant risks to the economy.
Despite the improvements, all sentiment indices remained lower than the previous year’s levels, as consumers remained concerned about the potential impact of tariffs on prices and broader geopolitical issues. Inflation expectations also showed a notable decline, with the one-year outlook falling to 5.1%, marking a 1.5 percentage point drop, while the five-year projection decreased slightly to 4.1%.
Hsu indicated that although fears about tariff-related inflation have softened, expectations still remain elevated compared to prior months. Additionally, contrasting reports from the Federal Reserve of New York and the Bureau of Labor Statistics suggested limited upward pressure on prices, despite ongoing concerns. Market observers largely expect the Federal Reserve will refrain from interest rate cuts until September, even amid calls from the White House for reductions in response to softer inflation data.
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