Inflation expectations stabilize, though consumer confidence drops in USA

The University of Michigan Survey of Consumers Sentiment index posted their initial, preliminary readings for June 2024 today.

Inflation expectations

Today's came after a one-year inflation reading of 3.5% for May 2024, which was the highest inflation reading the index had noted since November 2023.

Year-ahead inflation expectations were unchanged this month at 3.3%, above the 2.3-3.0% range seen in the two years prior to the pandemic.

However, long-run inflation expectations inched up from 3.0% last month to 3.1% this month; the June reading should be interpreted as essentially unchanged from May.

Long-run inflation expectations have been remarkably stable over the last three years but remain elevated relative to the 2.2-2.6% range seen in the two years pre-pandemic," said Surveys of Consumers Director Joanne Hsu.

Consumer sentiment index data

Consumer sentiment was little changed in June; this month’s reading was a statistically insignificant 3.5 index points below May and within the margin of error.

This means sentiment is currently about 31% above the trough seen in June 2022 amid the escalation in inflation.

Today's index of consumer sentiment readings were at 65.6 for June's initial reading - significantly lower than expected and from last month.

Previous sentiment readings for the index were at 67.4 for May’s initial reading.

Hsu noted that:

In line with expectations

Broadly, analysts were expecting a reading of around 72 for June, up from April’s reading of 69.1.

This meant today's readings were far below market expectations for this month.

Significance of the figures

The monthly University of Michigan Consumer Sentiment Index readings are seen as a gauge of how confident the American public is on the short- and medium-term economic health of the United States.

Markets like the are known to be affected by the index and so the University of Michigan Consumer Sentiment Index are often a leading indicator as to how much consumers will be spending and, consequently, by how much (or little) the US economy grows.

Lower-than-expected or declining consumer sentiment figures are often a sign of lower US economy growth and, also for the US dollar.

Conversely, a high or higher-than-expected reading can be seen as a bullish indicator for both the USD and the US economy broadly.

It is also one of the many metrics closely watched by the Federal Reserve to take into account when it comes to their monetary policy decision-making.