US consumer sentiment registered its first increase in four months in early June, providing some relief for Americans contending with surging inflation. The University of Michigan's preliminary sentiment index rose to 48.9 in June from a record low of 44.8 in May. This figure surpassed most economists' expectations in a Bloomberg survey, yet it still represents the second-lowest reading since the 1970s. This rebound interrupts a period of declines, but the index remains 19% below its level a year prior and 13% below January's reading. The final June figure was 49.5, confirming the preliminary increase of 10.5% month-over-month, though it is 18.5% lower year-over-year.
According to Joanne Hsu, director of the Surveys of Consumers, lower gasoline prices were a key factor in this improvement, with the gain observed across various demographics including age, education, and political affiliation. Gasoline prices dropped to $4.11 per gallon this week from $4.56 per gallon on May 21, which was a four-year high. This relief at the pump has been particularly beneficial for lower-income households. Despite this uptick, robust inflation concerns persist, with over half of consumers spontaneously mentioning high prices as a burden on their personal finances for the third consecutive month.
Year-ahead inflation expectations slightly decreased from 4.8% in May to 4.6% in June, still markedly higher than the 3.4% observed before the Iran conflict began earlier in the year. Long-run inflation expectations also fell back from 3.9% last month to 3.3% in June, remaining slightly above the 2.8% to 3.2% range seen in 2024. While the increase in sentiment is positive, the overall reading of around 49 is considered historically weak, aligning more with past downturns than periods of sustained economic growth. The ongoing conflict with Iran continues to pose a risk to the economic outlook.
