Consumer sentiment increased 8 percent this month amid easing inflation and the resolution of the debt ceiling crisis, according to June’s University of Michigan Surveys of Consumers.
The index tracking consumer sentiment increased to 63.9, nearly 28 percent higher than June 2022. The index tracking economic conditions rose by nearly 5 percent to 68, 26.4 percent higher than its year-ago mark of 53.8; and the index of consumer expectations increased 10.6 percent to 61.3, 29 percent higher than last June.
“Sentiment remains low by historical standards as income expectations softened,” said Surveys of Consumers Director Joanne Hsu. “A majority of consumers still expect difficult times in the economy over the next year.”
Year-ahead inflation expectations fell for the second straight month, to 3.3 percent from 4.2 percent in May. Long-run inflation expectations were mainly unchanged at 3 percent, higher than its range of 2.2 percent to 2.6 percent during the two years before the pandemic.
Improved expectations came as the Consumer Price Index rose by an annual clip of 4 percent in May, much lower than the 4.9 percent increase in April. As inflation fell, average hourly employee earnings increased 0.3 percent last month, according to the U.S. Bureau of Labor Statistics.
Business research nonprofit The Conference Board’s Consumer Confidence Index fell 0.7 percent in May to 106.7 amid a drop in consumer expectations, a negative yield spread and worsening credit conditions. The Conference Board is still predicting a recession due to continued monetary tightness and reduced government spending, said Senior Manager Justyna Zabinska-La Monica.
“Rising interest rates paired with persistent inflation will continue to further dampen economic activity,” she said. “While we revised our Q2 GDP forecast from negative to slight growth, we predict that the U.S. economy will contract over the Q3 2023 to Q1 2024 period.”