Despite pop in consumer sentiment, households are still pessimistic

Consumer sentiment rose in early June but still remains consistent with a low level of optimism. Although inflation expectations came in, fluid trade policy is still driving concerns of potential price hikes which households increasingly expect to impact their ability to spend.

Source: University of Michigan and Wells Fargo Economics

Sentiment bounces with lack of further tariff escalation

Consumers sentiment perked up in early June—perhaps in reaction to the more recent de-esclation in trade tensions—but at 60.5, the University of Michigan's Consumer Sentiment index is still consistent with a historically low level of optimism (chart). Although overall consumer spending has proved resilient through April, when asked about the economy, households have grown more and more downbeat since the start of the year.

Increased concern around tariffs and the potential for them to bid up prices has left consumers worried. In this preliminary read for June, consumers grew slightly more optimistic about future conditions, and their read on current situations also improved, though both measures remain notably low (chart). Although there has been some reprieve on the tariff front amid a U.S.—China trade agreement and some delayed effects of realized cost pressure, current policy is still consistent with a historically-high tariff rate facing U.S. importers today. With many details still set to be worked out among countries, we expect the fluid nature of trade policy to keep consumers on their toes, and overall sentiment depressed in the near term.

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