Consumer sentiment reading rebounds to much higher level than expected as people get over tariff shock

During the early part of June, consumers showed a significantly more positive outlook on the economy and inflation, as progress was made in the global trade war, according to a recent University of Michigan survey.

The university’s Surveys of Consumers revealed a notable improvement in sentiment across the board, with respondents also reducing their expectations for inflation in the near term.

The headline index for consumer sentiment reached 60.5, surpassing the Dow Jones estimate of 54 by a significant margin and marking a 15.9% increase from the previous month. Both the current conditions index and the future expectations measure saw substantial gains of 8.1% and 21.9%, respectively.

This positive shift coincided with a decrease in the heated rhetoric surrounding President Donald Trump’s tariffs. Following Trump’s “liberation day” announcement on April 2, the administration has entered a 90-day negotiation period that seems to be making progress, especially in discussions with China.

“Consumers have started to recover from the shock of the high tariffs announced in April and the subsequent policy uncertainties,” noted survey director Joanne Hsu. “However, consumers still perceive significant risks to the economy.”

Although sentiment has improved, all indexes remain below their levels from a year ago, reflecting ongoing concerns about the impact of tariffs and other geopolitical issues.

Expectations for inflation also saw a notable decline, with the one-year outlook dropping to 5.1% and the five-year view decreasing to 4.1%. Despite this improvement, consumers still anticipate higher inflation due to trade policies.

The Michigan survey, which will be updated later this month, had previously stood out for its inflation concerns compared to other indicators. The Federal Reserve of New York reported a decrease in the one-year inflation outlook to 3.2% in May, while recent data from the Bureau of Labor Statistics showed minimal price increases, indicating little inflationary pressure from tariffs.

The subdued inflation numbers have prompted calls from President Trump and White House officials for the Fed to consider lowering interest rates. While the central bank is not expected to make any cuts at its upcoming meeting, economists anticipate that the tariffs could impact inflation in the near future.