The mood among American consumers took a noticeable turn for the better in early June, according to the latest University of Michigan survey. The headline consumer sentiment index climbed to 60.5, a significant jump from May and well above what economists had expected. For context, analysts polled by Dow Jones were looking for a reading of 54, so the actual result represents a 15.9% increase over the previous month and a clear sign that households are feeling more optimistic about the economy’s direction.
This improvement in sentiment comes at a time when inflation remains a major topic of conversation, both in the markets and at kitchen tables across the country. But the survey also brought some good news on that front. Consumers’ expectations for inflation over the next year dropped sharply, falling to 5.1%. That’s a 1.5 percentage point decrease from the previous survey and marks the lowest reading since 1981. The five-year inflation outlook also edged down to 4.1%, suggesting that people are starting to believe that price increases may be moderating, at least somewhat.
Consumer sentiment is closely watched because it can be a leading indicator for spending. When people feel better about the economy and less anxious about inflation, they’re more likely to make discretionary purchases, travel, or invest in big-ticket items. That, in turn, can boost revenue for companies across a range of sectors, from retailers to automakers to tech firms. When sentiment improves, demand for new gadgets, travel, and other discretionary goods and services typically rises. That can translate into stronger earnings reports and, potentially, higher share prices.
The University of Michigan’s survey is considered one of the more reliable gauges of consumer attitudes. It asks households about their views on current economic conditions as well as their expectations for the future. The headline index, which is the figure that gets the most attention, reflects a combination of those current and future outlooks. A reading above 50 is generally seen as positive, so the move to 60.5 is a notable development after a period of persistent economic uncertainty.
It’s worth noting that the improvement in sentiment comes despite ongoing concerns about interest rates and the potential for further policy moves by the Federal Reserve. While inflation has come down from its peak, it’s still running above the Fed’s long-term target. That means investors are keeping a close eye on data like this survey, looking for signs that the central bank’s efforts to cool the economy are having the desired effect without tipping the country into recession.
The sharp rebound in consumer sentiment and the drop in inflation expectations are encouraging signs for the U.S. economy. If these trends continue, they could provide a tailwind for stocks in the coming months, especially those that rely heavily on consumer spending.
