Economic anxiety took a breather in early June. Consumers dialed back their pessimism about inflation and the broader economy, thanks to what looks like progress in ongoing trade negotiations.
The University of Michigan dropped its latest consumer sentiment numbers Friday. The results? A pretty dramatic turnaround from the doom and gloom we’ve been seeing.
The headline consumer sentiment index hit 60.5. That crushed Wall Street expectations of 54 and marked a solid 15.9% jump from last month. Current conditions improved 8.1%. But here’s the kicker – future expectations rocketed up 21.9%.
What changed? Simple. The trade war rhetoric cooled off.
President Donald Trump has backed away from the fire-breathing tariff threats that spooked everyone back in April. Remember his “liberation day” announcement on April 2? That sent shockwaves through markets and consumers alike. Now Trump’s shifted gears. He’s opened a 90-day negotiation window. And it’s showing results, especially with China after recent diplomatic outreach.
“Consumers appear to have settled somewhat from the shock of the extremely high tariffs announced in April,” said Joanne Hsu, the survey director. But she added a warning: “However, consumers still perceive wide-ranging downside risks to the economy.”
Translation: People are less panicked. They’re not confident yet.
The inflation outlook tells the real story here. Consumer expectations for one-year inflation plummeted to 5.1%. That’s a massive 1.5 percentage point drop. We haven’t seen inflation fears spike and crash like this since 1981. The five-year outlook barely budged, falling just 0.1 percentage point to 4.1%.
Still, those numbers remain elevated compared to late 2024. Consumers clearly think trade policy will push prices higher eventually.
The Michigan survey had been an outlier on inflation fears. Other measures showed less panic. The Federal Reserve of New York reported this week that one-year inflation expectations fell to 3.2% in May – much lower than Michigan’s reading.
Meanwhile, actual inflation data came in soft. Both producer and consumer prices rose just 0.1% in May. That’s barely a blip. The tariffs haven’t shown up in the data yet. Most economists expect that to change in coming months.
The cooler inflation numbers gave Trump ammunition to pressure the Federal Reserve. He and other White House officials want rate cuts now. The Fed meets next week. Markets aren’t buying it – they’re betting on no cuts until September.
This survey captures a moment of cautious optimism. Consumers stepped back from panic mode. But they’re still watching. Still worried. The University of Michigan’s survey team will update these numbers at month’s end. That reading could tell us whether this improvement sticks or fades.
For now, it looks like diplomacy beats threats when it comes to consumer confidence. At least temporarily.
