Consumer sentiment rises for 1st time this year as inflation remains tame

Key Points

• June’s consumer sentiment index rose 16% to 60.5, the first monthly gain in six months though still down 20% from December 2024.
• Americans’ outlook improved as inflation stayed tame and the administration reached a temporary truce in its trade dispute with China.
• Consumers have eased from the shock of April’s steep tariff announcements but continue to perceive significant downside risks to the economy.
• Despite historically elevated duties, overall inflation has not worsened according to recent data.

WASHINGTON (AP) — Consumer sentiment increased in June for the first time in six months, the latest sign that Americans’ views of the economy have improved as inflation has stayed tame and the Trump administration has reached a truce in its trade fight with China.

The preliminary reading of the University of Michigan’s closely watched consumer sentiment index, released Friday, jumped 16% from 52.2 to 60.5. The large increase followed steady drops that left the preliminary number last month at the second-lowest level in the nearly 75-year history of the survey. Consumer sentiment is still down 20% compared with December 2024.

“Consumers appear to have settled somewhat from the shock of the extremely high tariffs announced in April and the policy volatility seen in the weeks that followed,” Joanne Hsu, director of the survey, said in a written statement. “However, consumers still perceive wide-ranging downside risks to the economy.”

Americans have largely taken a darker view of the economy’s future after President Donald Trump unleashed a wide-ranging trade war, imposing steep tariffs on China, the European Union, and dozens of other countries. Yet in April Trump postponed a set of sweeping tariffs on about 60 nations and last month reached a temporary truce with China, after both sides had sharply ratcheted up tariffs on each other.

The Conference Board's consumer confidence index, released in late May, also increased after five straight declines that were linked to anxiety over tariffs.

U.S. duties remain elevated compared with historical levels, but so far they have not worsened overall inflation. Prices rose just 2.4% in May compared with a year ago, up slightly from 2.3% in April. Still, most economists expect tariffs to hit harder in the coming months.

Consumer confidence is sharply divided by political outlook, with Republicans feeling much better about the economy under Trump than Democrats. Democratic sentiment about the economy was much higher under Biden, while Republican views were low. This month, however, sentiment did improve among supporters of both parties and independents.

Consumers' inflation expectations — basically a measure of how worried people are about future inflation — dropped this month, which will be welcomed by the inflation-fighters at the Federal Reserve. Inflation expectations can become self-fulfilling, because if people worry price increases will get worse, they can take steps — such as demanding higher pay — that push prices even higher.

The Fed meets next week, and is expected to keep its key short-term interest rate unchanged at about 4.3%.