U.S. Consumer Sentiment Improves in July Amid Tariff Concerns

U.S. consumer sentiment hit its highest point in five months in July, rising to 61.8, up from 60.7 in May. However, the reading remains well below its historical average, reflecting ongoing concerns surrounding the impact of U.S. tariffs.

Consumer Sentiment Index and Inflation Expectations

The University of Michigan’s consumer sentiment index was slightly higher than economists’ expectations of 61.4, indicating a modest improvement in consumer outlook. However, it still reflects a more cautious view compared to historical norms. The one-year inflation expectations also showed signs of cooling, dipping to 4.4% from 5.0%, marking the second consecutive month of decline.

Meanwhile, the five-year inflation expectations inched down to 3.6% from 4.0%, the lowest levels since February. Despite these improvements, inflation expectations remain elevated when compared to December 2024, signaling that Americans still perceive inflation risks persisting in the future.

Economic Context and Tariff Impact

While consumer sentiment showed improvement, there is little evidence that recent developments, such as the passage of President Donald Trump’s budget bill, significantly shifted consumer outlook. The focus remains on the potential economic impact of Trump’s sweeping tariffs, which economists warn could drive inflationary pressures and dampen broader economic growth.

However, recent reports indicate that the U.S. economy remains resilient. Retail sales exceeded expectations, and weekly jobless claims came in lower than anticipated, signaling strength in consumer spending and the labor market. Additionally, inflation stayed broadly in line with expectations in June, despite rising prices in certain goods affected by the tariffs.

Looking Ahead: The August 1 Deadline

As the August 1 deadline for Trump’s elevated tariffs approaches, concerns about their economic impact continue to linger. Trump’s “reciprocal” tariffs are set to take effect, though the White House has suggested that new trade agreements with certain countries may come before that date.

So far, preliminary deals have been reached with several countries, including the United Kingdom, China, Vietnam, and Indonesia, while larger U.S. trading partners like the European Union have yet to finalize agreements to avoid the higher levies.

As the situation continues to evolve, investors and consumers alike will be closely watching how these tariffs and the resulting trade negotiations shape economic sentiment moving forward.