U.S. consumer sentiment rose in June for the first time in six months, buoyed by easing trade tensions with China, though many households remain concerned about the broader economic outlook.
The University of Michigan’s Surveys of Consumers reported the increase on Friday, but the positive shift in sentiment was overshadowed by Israel’s missile strikes on Iran, which drove oil prices to multi-month highs and rattled global stock markets.
While consumer inflation expectations also improved in June, the spike in oil prices could lead to higher gasoline costs, potentially reducing disposable income. Gas prices had been relatively low this year, offering a boost to consumer spending.
“The improvement could be short-lived if geopolitical instability and rising oil prices persist,” said Eugenio Aleman, chief economist at Raymond James. “The same caution applies to inflation expectations.”
The University of Michigan’s Consumer Sentiment Index rose sharply to 60.5 from May’s final reading of 52.2—well above the 53.5 median forecast from economists polled by Reuters. Despite the rebound, sentiment remains roughly 20% below its December level, when optimism spiked following President Donald Trump’s victory in the November 5 election.
The improvement in sentiment was broad-based, spanning all age, income, political affiliation, and geographic groups. Although fewer consumers mentioned tariffs unprompted compared to May, it was still the highest such level since the election.
U.S. stock markets slipped, the dollar gained against other major currencies, and Treasury yields moved higher following the data release.
Cautious Optimism Amid Ongoing Risks
Recent progress in U.S.-China trade talks has helped stabilize sentiment. Washington agreed to reduce tariffs on Chinese imports from 145% to 30% through mid-August, and both sides reached a preliminary deal outlining future tariff policy.
“Consumers seem to be regaining some stability after the shock of the extreme tariffs announced in April and the subsequent policy swings,” said Joanne Hsu, director of the Surveys of Consumers. “Still, there are broad concerns about economic risks.”
According to Hsu, consumer outlooks on key indicators—business conditions, personal finances, major purchases, labor markets, and equities—remain far below where they stood six months ago.
Some analysts questioned the reliability of the sentiment report due to low survey participation. Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics, dismissed the results, calling the survey “a broken compass.”
Short-term inflation expectations fell to 5.1% in June from 6.6% in May, suggesting consumer fears over tariff-driven price hikes have eased. Hsu noted that subdued consumer price growth in recent months may have influenced this outlook.
Economists believe inflation has remained relatively mild because companies are still selling goods stockpiled before Trump’s tariffs took effect. However, they expect price pressures to build in the second half of the year. Long-term inflation expectations edged down to 4.1% from 4.2% in May.
“Even with the decline, long-run inflation expectations remain historically elevated, showing that concerns over rising prices haven’t gone away,” said Oren Klachkin, economist at Nationwide.
Federal Reserve officials, who are set to meet on Tuesday and Wednesday, may take note of the decline in inflation expectations. However, the previous spike in these expectations had already been dismissed by many at the Fed as an outlier.
The central bank is widely expected to leave its benchmark interest rate unchanged in the 4.25%–4.50% range as policymakers continue assessing the impact of trade policy and geopolitical risks on the U.S. economy.
