Additional Coverage:
- Consumer sentiment reading rebounds to much higher level than expected as people get over tariff shock (nbcnews.com)
Consumer Confidence Rebounds in June Amid Trade War Truce
Consumer sentiment saw a significant boost in early June, according to the University of Michigan’s Surveys of Consumers released Friday. Optimism increased across the board, driven by easing trade tensions and a more positive economic outlook.
The headline consumer sentiment index jumped to 60.5, considerably exceeding the Dow Jones estimate of 54 and marking a 15.9% increase from the previous month. Both the current conditions and future expectations indexes saw substantial gains, rising 8.1% and 21.9% respectively.
This positive shift aligns with a recent softening in the trade war rhetoric. Following President Trump’s “liberation day” announcement in April, the administration has entered a 90-day negotiation period, particularly with China, which appears to be yielding progress.
“Consumers seem to have recovered somewhat from the initial shock of the tariffs announced in April and the subsequent policy volatility,” noted Joanne Hsu, survey director. However, she cautioned that consumers still perceive significant downside risks to the economy. Sentiment indexes remain below year-ago levels, reflecting ongoing concerns about the potential impact of tariffs on prices and other geopolitical factors.
Inflation expectations also moderated. The one-year inflation outlook dropped to 5.1%, a significant decrease of 1.5 percentage points.
The five-year outlook saw a smaller decline to 4.1%. While these figures are still higher than those seen in late 2024, Hsu suggests that concerns about tariff-driven inflation have eased.
The Michigan survey’s inflation readings had previously contrasted with other market indicators, which suggested a more contained inflation outlook. Recent reports from the Bureau of Labor Statistics also showed minimal increases in both producer and consumer prices, indicating limited immediate impact from the tariffs.
However, economists anticipate that the effects of the tariffs may become more apparent in the coming months. These softer inflation numbers have prompted calls from the White House for the Federal Reserve to cut interest rates, though market expectations suggest that such action is unlikely before September.