Consumer Sentiment Rises 1.8% in July, Inflation Concerns Persist

Americans are experiencing a surge in economic optimism, with the University of Michigan’s Consumer Sentiment Index reaching 61.8 in July, up from 60.7 in June. This marks the highest point for the index in five months, surpassing analyst expectations and echoing the sentiment seen just after President Donald Trump took office in February. However, the increase is modest, with the index still 16% below its December 2024 level and well below its historical average.

Joanne Hsu, Director of Surveys of Consumers, described the results as "little changed" from June, noting that while the index has inched up by about one point, it remains significantly lower than previous highs. The Current Economic Conditions Index rose by 3.1 points to 66.8, indicating growing confidence in near-term business and job prospects. However, the Consumer Expectations Index, which reflects expectations for the coming six months, rose only slightly to 58.6 and remains down 14.8% from last year. This suggests that while short-term business conditions have improved by about 8%, expected personal finances have fallen by about 4%, indicating continued individual financial concerns.

High-wealth consumers, in particular, are not sharing in the generally improving outlook. Their sentiment remains down 17% from December 2024, highlighting a disconnect between different economic strata. The survey also reveals that inflation remains a top concern for many Americans. Year-ahead inflation expectations dropped for the second straight month to 4.4%, down from 5.0% in June and from a peak of 6.6% in May. This marks the lowest reading since February 2025. Long-run inflation expectations also receded, falling for a third consecutive month to 3.6% from 4.0% in June. While these are the most moderate readings in months, both remain higher than levels seen in late 2024, indicating ongoing wariness about longer-term inflation risk.

Hsu noted that consumers are unlikely to regain their confidence in the economy unless they feel assured that inflation is unlikely to worsen. This assurance could come from stabilizing trade policies or other economic developments. However, recent legislative developments, such as the passage of tax and spending bills, have had little discernible effect on overall consumer sentiment. The uptick in consumer confidence comes despite recent economic data showing robust trends, suggesting a disconnect between consumer perceptions and macroeconomic realities. This disconnect highlights the complex interplay between economic indicators and consumer sentiment, with inflation expectations playing a crucial role in shaping overall optimism.