Despite an overall resilient U.S. economy, consumer sentiment tumbled in June due to persistent concerns over high prices, highlighting the nuanced challenges faced by Americans. The University of Michigan’s latest consumer sentiment survey, released on Friday, revealed a significant drop, marking the lowest level in seven months. The index reading fell to 65.6 in June from 69.1 in May, significantly lower than the 72 expected by economists.
Impact on Personal Finances and Economic Perceptions
Joanne Hsu, the director of the Survey of Consumers, pointed out that the decline in sentiment was driven by rising worries about high prices and weakening incomes. “Assessments of personal finances dipped due to modestly rising concerns over high prices as well as weakening incomes,” Hsu explained in a statement. “Overall, consumers perceive few changes in the economy from May.”
The current conditions index, reflecting consumers’ evaluations of their present financial situation, fell sharply from 69.6 in May to 62.5 in June. This drop significantly contributed to the overall decline in the headline index. Olivia Cross, an economist at Capital Economics North America, noted that this decline indicates households are increasingly struggling with the burden of higher interest rates and persistently elevated consumer prices.
Stability in Inflation Expectations
Despite the drop in consumer sentiment, year-ahead inflation expectations remained stable at 3.3%, the same as the previous month. The survey was conducted between May 22 and June 12, meaning many respondents did not have the opportunity to incorporate the more favorable inflation data released towards the end of this period. For example, the May Consumer Price Index (CPI), released on June 12, showed a 3.3% year-over-year increase, marking the lowest monthly headline reading since July 2022.
Additionally, after the survey window closed, the Producer Price Index (PPI) indicated an unexpected decline in wholesale prices for May, suggesting potential easing of price pressures. Despite these positive developments, consumers remain focused on the high prices they encounter daily.
Discrepancy Between Consumer Concerns and Price Trends
Cross highlighted the inconsistency between consumer concerns and recent price trends for essentials. “The press release noted that consumers were still concerned about high prices, and year-ahead inflation expectations remained at 3.3%. That is at odds with price developments for essentials, given that gasoline prices have eased back and we learned this week that the CPI food at home index was unchanged in May.”
Broader Economic Perspective and the Federal Reserve’s Position
The persistent decline in consumer sentiment underscores a broader trend of dissatisfaction among Americans regarding high prices, even as inflation shows signs of cooling and the labor market remains robust. During a press conference on Wednesday, Federal Reserve Chair Jerome Powell acknowledged the difficulty in reconciling the disconnect between Americans’ perceptions and actual economic data. “People experience what they experience,” Powell said. “All I can tell you is what the data show, which is, we’ve got an economy that’s growing at a solid pace. We’ve got a very strong labor market with unemployment at 4%. It’s been a long time since we’ve had, you know, a long stretch of time with unemployment at or below 4%, very long time.”
Powell emphasized that while inflation has come down significantly from its peak, the central bank remains committed to restoring price stability and is confident that inflation will eventually return to its 2% target. However, he also acknowledged that the process would continue to be painful for many. “In the meantime, you know, it’s going to be painful for people,” Powell said. “But the ultimate pain would be … a long period of high inflation.”
Consumer Sentiment and Economic Realities
The decline in consumer sentiment reflects the ongoing struggles many Americans face with high prices, even as broader economic indicators suggest resilience and growth. The disconnect between consumers’ day-to-day experiences and positive economic data points underscores the complexity of the current economic landscape and the challenges that lie ahead in achieving both economic stability and consumer confidence.
Correction Note
A previous version of this article misspelled Olivia Cross’s name. We regret the error.
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Conclusion
The June drop in consumer sentiment highlights the ongoing struggles many Americans face with high prices, even as broader economic indicators suggest resilience and growth. The disconnect between consumers’ day-to-day experiences and positive economic data points underscores the complexity of the current economic landscape and the challenges that lie ahead in achieving both economic stability and consumer confidence.