Consumer sentiment rises amid lower gas prices; renewal of Iran conflict poses risk
Consumer sentiment surged to a five-month high in early July as cooling gas prices put Americans in a better economic mood. But the improvement could be short-lived due to the recent renewal of tensions in the Middle East.
The University of Michigan’s Index of Consumer Sentiment rose to 54.4 in preliminary results for June, up 9.9% month over month. It was the highest reading since February.
In other improvements, the index measuring current economic conditions increased to 54.9, up 15.1% month over month. The index of consumer expectations rose 6.5% to 54.0.
“With the second straight month of 10% jumps, consumer sentiment climbed to its highest reading since February of this year on the basis of easing price pressures at the pump in recent weeks,” said Joanne Hsu, surveys of consumers director. “However, with prices remaining frustratingly high, consumers are hardly ebullient about the economy; sentiment is down 12% from a year ago.”
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Hsu cautioned that that sentiment’s upward momentum in June may prove difficult to sustain if recent declines in gas prices continue to reverse course. (More than 70% of the interviews for the preliminary July results were completed before the resumption of U.S. strikes against Iran on July 7 and the subsequent increase in gas prices.)
Inflation
Year-ahead inflation expectations ticked down from 4.6% in June to a still-elevated 4.2% in July. The current reading substantially exceeds the 3.4% seen in February before the Iran conflict began, along with all 2024 readings, according to Hsu.
Long-run inflation expectations held steady from last month at 3.3%, remaining a bit higher than the 2.8% to 3.2% range seen in 2024.
Hue noted that he rise in sentiment in July was pervasive across the population, seen across groups by age, income, wealth and political party. Particularly strong increases were seen among consumers without a bachelor’s degree.
