American consumer confidence improved more than expected in early July, climbing to its highest level in five months as inflation expectations fell sharply and retail spending showed renewed strength.
The University of Michigan’s preliminary consumer sentiment index rose to 61.8, beating the 61.5 forecast and up from 60.7 in June. It marks the second consecutive monthly increase and suggests that Americans are growing more optimistic as price pressures ease and economic momentum picks up.
One-year inflation expectations fell to 4.4 percent, down from 5.0 percent in June and a recent peak of 6.6 percent in May. Five-year expectations dropped to 3.6 percent, the lowest since February. The back-to-back declines suggest that consumer fears about inflation—initially driven by concerns over new tariffs—are subsiding.
Recent economic data support that shift in sentiment. Import price figures released this week show that tariffs are largely being absorbed by foreign producers, not passed on to American consumers. Import prices fell 0.4 percent in May and were flat in June, undercutting predictions that tariffs would reignite inflation. The producer price index came in flat for June, indicating no inflation for the month, while core consumer prices rose by less than forecast.
At the same time, retail sales surged in June, rising 0.6 percent month-over-month in a broad-based rebound that beat expectations. Spending increased across most major categories, indicating that consumers are not pulling back in anticipation of higher prices—another sign that inflation concerns are ebbing.
The University of Michigan survey also showed the Index of Current Economic Conditions rose to 66.8, up from 64.8 in June, while the Index of Consumer Expectations ticked up to 58.6 from 58.1. Confidence remains well below the post-election peak of 74 in December but has clearly rebounded from its April low of 52.2.
The sentiment recovery appears to be led by Republicans and independents, who expressed greater optimism about the economic outlook following President Trump’s signing of a major tax and spending package in late June. Sentiment among Republicans reached its highest level since September 2020.
The survey was conducted from June 24 to July 14, a period that included both the passage of Trump’s economic package and intensifying global attention on the administration’s new trade strategy.
With inflation expectations falling and consumer spending accelerating, the report may strengthen the case for the Federal Reserve to begin cutting interest rates when it meets later this month.
Final consumer sentiment data for July will be released on Friday, August 1.
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