US consumer sentiment rose to 54.4 in July, the highest since February, as easing inflation and lower gasoline prices lifted household confidence.
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US consumer sentiment jumps to 54.4 in July, beating estimates
US consumer sentiment improved more than expected in July, climbing to 54.4 from 49.5 in June, as easing inflation and a sharp retreat in gasoline prices lifted household confidence for a second straight month.
"Consumer sentiment climbed to its highest reading since February of this year on the basis of easing price pressures," Joanne Hsu, director of surveys at the University of Michigan, said.
The July reading topped the 51 consensus estimate and marked a 10% jump from June, following a similar gain in the prior month. The index remains well below the 56.6 level recorded in February, before the US and Israel launched military operations against Iran. It hit a record low of 44.8 in May.
Consumer spending accounts for about 70% of US economic output, making sentiment data a key gauge for the growth outlook. The improvement comes as the Federal Reserve monitors inflation expectations for signs that price pressures are becoming entrenched.
Inflation Cools, Gas Prices Retreat
The improvement in sentiment reflects a sharp easing in price pressures. The Consumer Price Index fell 0.4% month over month in June, the steepest monthly decline in nearly six years, dragging the annual inflation rate to 3.5% from 4.2% in May. Core prices were flat on the month, with the yearly rate slowing to 2.6%, both below consensus estimates. Producer prices also softened, with the yearly PPI easing to 5.5% from a revised 6%.
Gasoline prices, a key driver of consumer sentiment, have fallen nearly 30% from the highs reached in April and May during the peak of the Middle East conflict. The moderation at the pump was cited by the University of Michigan as a primary factor behind the sentiment rebound in June. Retail sales data released Thursday showed a mild increase, while weekly jobless claims added to evidence that the labor market has stabilized.
Dollar Holds Near 100 as Markets Weigh Fed Path
The US Dollar Index traded just above the 100 level following the data release, holding within a descending channel that has contained price action since mid-June. The dollar has weakened this week as investors pared bets on immediate Federal Reserve rate hikes, though the ongoing escalation in the Middle East continues to provide support. The 2-year Treasury yield edged lower as the data reinforced the narrative of cooling inflation.
The last time consumer sentiment posted back-to-back monthly gains of 10% or more was during the recovery from the pandemic-era lows in 2020, underscoring the magnitude of the recent rebound. The 1-year and 5-year inflation expectations components of the survey will be closely watched for any signal that consumers expect price pressures to persist, which could influence the Fed's policy trajectory. The central bank's next rate decision is scheduled for late September.
This article is for informational purposes only and does not constitute investment advice.
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