U.S. consumer sentiment soared in early July to an almost two-year high, bolstered by easing inflation and a strong labor market.
The University of Michigan preliminary index rose by 8.2 points to 72.6, the highest since September 2021. The reading topped all forecasts in a Bloomberg survey of economists, and the monthly advance was the largest since 2006.
Meanwhile, short-term inflation expectations ticked higher in early July to 3.4% from 3.3% a month earlier. That’s still well below last year’s peak of 5.4%. They see costs rising 3.1% on an annual basis over the next five to 10 years.
“The sharp rise in sentiment was largely attributable to the continued slowdown in inflation along with stability in labor markets,” Joanne Hsu, director of the survey, said in a statement.
Sentiment, while still well below pre-pandemic levels, has been improving against a backdrop of steady employment growth and wage gains. And while prices remain elevated, the rate of inflation is moderating.
High prices have been most challenging for lower-income households. Hsu said that sentiment improved for all groups except lower-income consumers.
Friday’s report showed consumers expect a low unemployment rate over the next year, and the majority sees their incomes rising at least as much as inflation.
While longer-term inflation expectations appear well-anchored, minutes from the Federal Reserve’s June meeting showed that some officials remain concerned that those views “could become unanchored, particularly in light of stronger-than-expected consumer demand and a still-tight labor market.”
Buying conditions for durable goods jumped to the highest level in two years. Consumers’ outlooks for their financial situation also reached a two-year high, while their current perceptions increased to the highest since April of last year.
The current conditions gauge rose to an almost two-year high of 77.5 from 69. The university’s measure of expectations increased to 69.4 this month, the highest in two years.