U.S. Consumer Sentiment Rises While Tariffs Weigh on Outlook

(Bloomberg) -- U.S. consumer sentiment rose this month amid more-favorable personal finances, while tariffs weighed on Americans’ optimism for the economy and helped boost inflation expectations to a three-year high, according to a University of Michigan report Friday.

Highlights of Michigan Sentiment (June, Preliminary)

  • Sentiment index rose to 99.3 (est. 98.5) from 98 in May
  • Current conditions gauge, which measures Americans’ perceptions of their finances, advanced to 117.9, second-highest reading since 2000, from 111.8
  • Expectations measure decreased to 87.4, a five-month low, from 89.1
  • Consumers saw inflation rate in the next year at 2.9%, highest since March 2015, after 2.8%

Key Takeaways

The report showed a divergence in sentiment about the present and the future, with a near-record number of households mentioning recent income gains and contrasting with a pickup in inflation expectations. The economic outlook was “much more negative” among respondents who unfavorably mentioned the new tariffs, as the Trump administration imposed tariffs on metals imports from allies and prepared for levies on $50 billion of Chinese imports.

Even so, sentiment remains near the high for this expansion, as a tight labor market and historically low unemployment levels continue to buoy the U.S. economy. That should help drive continued gains in consumer spending, the biggest part of the U.S. economy.

Respondents anticipated an annual gain of 2.5 percent in household incomes, the highest since 2008 and up from 1.6 percent in May, the report showed. Almost all of the June gain came from people in the bottom two-thirds of incomes, reflecting job gains across the population.

Official’s View

“Consumers see the tariffs negatively affecting business prospects,” Richard Curtin, director of the University of Michigan consumer survey, said on a conference call. “But it did not affect the five-year business outlook. Only it was concentrated on the one-year business outlook as though consumers expect this kerfuffle about trade to be over shortly and not lead to a long-lasting trade war.”

Other Details

  • Among respondents, 29 percent expected unemployment rate to decline in the year ahead, while 23 percent saw an increase and 48 percent expected no change
  • Inflation rate over next five to 10 years seen at 2.6 percent, highest since July, following five months at 2.5 percent

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