Consumer sentiment rebounds in June

Consumer sentiment rebounded in June to the second-highest level since the start of the pandemic. 

The University of Michigan’s Consumer Sentiment Index rose to 85.5 in June, up from 82.9 in May. The June reading was below the median forecast of 86.5 among economists polled by Reuters. (The final June reading was also below the initial reading of 86.4 for the first half of the month.)

Consumers in June had more upbeat view on the short-term expectations, while current conditions deteriorated slightly.  The index of consumer expectations rose to 83.5 in June from 78.8 in May.  The index gauging Americans' assessment of the current economic conditions fell to 88.6 in June from 89.4 in May, and was well below April’s 97.2.

“All of the June gain was among households with incomes above $100,000, and mainly in the way they judged the future economic outlook,” said University of Michigan economist Richard Curtin, director of the surveys.

Declines in the unemployment rate in the year ahead were expected by 56% of consumers, the largest proportion recorded in the past half-century. The growing economic strength meant 73% of consumers expected rising interest rates in the year ahead—the highest proportion since 2018.

Consumers expect the economy to continue to gain strength in the year ahead, which prompted an all-time record number to expect continued declines in unemployment. Perhaps the best description of their expectations for the economy is a guarded optimism, according to Curtin.

“While many are optimistic about a gradual end to the pandemic, consumers still judged the risks from the emerging covid variants as appreciable,” he said. “It is likely that consumers will not reduce their accumulated savings and reserve funds to their pre-pandemic levels, but maintain a higher level of precautionary funds.”