In early July 2023, the U.S. consumer sentiment index reached its highest level in five months, attributed to reduced inflation worries.
Improvement in Consumer Sentiment
The preliminary consumer sentiment index rose to 61.8, up from 60.7 in June, marking the highest level since February. Despite this improvement, confidence has not yet returned to last year's levels. The drop in short-term inflation expectations to 4.4% from 5% last month was a key driver of this increase.
Concerns and Limitations
Despite the positive reading, some concerns remain. Joanne Hsu, who leads the survey team at the University of Michigan, stated that "Consumers’ expectations over business conditions, labor markets, and even their own incomes continue to be weaker than a year ago." She added that the recent increase in sentiment suggests that consumers no longer feel like the worst-case scenarios from earlier this year are coming true.
Consumer Activity and Outlook
While consumer sentiments inch upward, consumer activity tells a louder story. Retail sales in June increased by 0.6%, surpassing the expected 0.2%. This contributed to a rally in stock prices. Moreover, Shruti Mishra, a U.S. economist at Bank of America, highlighted improving online spending and travel activity. "In the first two weeks of July, airport traffic is up 0.9% year-over-year," she wrote in her report.
Overall, despite the moderate improvement in consumer sentiment and rising activity, concerns regarding tariffs and inflation remain significant, which may impact the economic situation in the future.
