Consumers Shrug Off Geopolitical Conflict to Send Sentiment Higher
Consumer expectations improved by more than 20% amid higher optimism over personal finances and business conditions, while inflation expectations also improved.
The reading is still lower than the post-election bump in December as worries over the impacts of tariffs persist.The economic effects of the conflict in the Middle East didn't weigh on consumers' minds in June as sentiment continued to inch higher and inflation concerns faded.
The Michigan Consumer Sentiment Index improved in June to 60.7, a tick higher than its preliminary reading and 8.5 points higher than the prior month. It was the first improvement of the closely followed survey results in six months. The reading comes after a similar survey ticked lower this month.
Consumers were still worried about tariffs but were more optimistic about personal finances and business conditions. The survey that ended on Monday also showed that the U.S. airstrikes on Iran didn't impact consumers' feelings about the economy.
'It's not that consumers don't recognize the risks that are present; they do. Instead, they appear to be adapting to the new reality of geopolitical instability and fluid policy, and the sense that developments can change the narrative—and the resulting outlook—meaningfully and with little warning,' wrote Jim Baird, chief investment officer with Plante Moran Financial Advisors.
Sentiment is still about 18% lower than the December 2024 post-election surge.
Pessimism about the labor market and worries that tariffs will raise prices have faded but still persist. Inflation expectations improved, as consumers predicted prices would increase by 5% over the next year, lower than May's expectation of 6.6%.
'Consumers feel they have some breathing room given that the historically high tariffs announced earlier this year have not been sustained, and the worst-case scenarios for the economy have not come to fruition,' said Survey Director Joanne Hsu.
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