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FROM MORIBUND TO MERELY MOROSE: JUNE CONSUMER SENTIMENT BOUNCES IN THE BASEMENT

The outlook of the American consumer, who shoulders the burden of about 70% of the U.S. economy, has brightened this month.

The University of Michigan's (UMich) preliminary take on June Consumer Sentiment USUMSP=ECI rose by 4.1 points, or 9.2%, to 48.9.

That's cheerier than the 46.0 consensus.

Survey participants' assessment of current conditions deteriorated by 5.7% to 48.4, coming off the lowest reading in the survey's history.

Near-term expectations surged by 11.8% to 49.3.

But before we pop the cork, it bears remembering that these levels remain barely off historic lows. The expectations component, for example, has plunged 35.9% since President Trump's November 2024 re-election. The current conditions element is down 24.3% over the same timeframe.

The overall index has dropped 19.4% in the last 12 months.

The improvement was largely due to relief from "early-month easing in gasoline prices," says Joanne Hsu, director of consumer surveys at UMich, who adds that "lower-income consumers exhibited a particularly strong sentiment increase, consistent with the fact that gasoline comprises a larger share of their budgets."

"However, views of the economy are still relatively dour," Hsu says.

Near-term inflation expectations cooled by 20 basis points to 4.5%, or 1.7 percentage points hotter than the most recent 2.9% core CPI print.

Longer-term price growth expectations dropped to 3.4%, still well above the Fed's average annual 2% inflation target.

"Consumers remain focused on kitchen table issues," Hsu writes. "They feel burdened by the recent escalation in inflation and worry that higher inflation could remain stubborn going forward, particularly in the short run."

As always, it's prudent to draw a distinction between what consumers say and how they spend. Comparing monthly changes in UMich with monthly percentage changes in PCE outlays, consumers actually tend to spend more when sentiment dips, although spiking prices at the gasoline pump could help explain the more recent divergence.

(Stephen Culp)

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