Sentiment was essentially unchanged this month, inching down a scant 1% from May, according to the University of Michigan Surveys of Consumers.
While consumers exhibited confidence that inflation will continue to soften, many expressed concerns about the effect of high prices and weakening incomes on their personal finance, said U-M economist Joanne Hsu, director of the Surveys of Consumers. These developments offset notable improvements in the short-run and long-run outlook for business conditions.
Sentiment is currently about 36% above the all-time historic low in June 2022, reflecting how much consumer views have improved as inflation slowed, though sentiment remains about 20% below the historical average. Overall, consumers perceive few meaningful changes in the economy from May.
"Over the past two years, our surveys clearly reveal that consumers distinguish between their experiences with high price levels and their views of overall inflation rates," Hsu said. "On one hand, they recognize that inflation has softened substantially and expect that trend to continue. On the other hand, slowing inflation does not generally lead to reductions in overall price levels; the persistence of high prices continues to exert pain on household budgets."
Consumers expect slowdown in inflation to continue, but pain of high prices persist
Consumers continued to note the softening in actual inflation after its peak in June 2022, as seen in the decline in their inflation expectations over this period. This month, consumers expressed confidence that inflation will ease further.
At the same time, consumers recognize that a slowdown in inflation does not necessarily generate lower prices, Hsu said. A sizable share of consumers continued to voice frustration over the impact of high prices. Approximately 46% of consumers blamed high prices for eroding their living standards, just shy of the 47% seen last October. These divergent patterns since 2022 are visible across age, education, income and political affiliation.
Housing market conditions remain poor for buyers
Buying conditions for homes dipped and continued the extremely low readings seen in recent months. Only 12% of consumers expressed that it is a good time to buy a home. The confluence of high borrowing costs and house prices over the past 18 or so months has created an extremely unfavorable environment for potential homebuyers, Hsu said.
Looking ahead, consumers expect home values to continue to climb, over both the short and long term, which would result in continued headwinds for prospective homebuyers. At the same time, a growing share of consumers expect interest rates to fall in the year ahead, which would ease some pressure on housing markets.
Consumer Sentiment Index
The Consumer Sentiment Index fell to 68.2 in the June 2024 survey, down from 69.1 in May and above last June's 64.2. The Current Index fell to 65.9, down from 69.6 in May and below last June's 68.9. The Expectations Index rose to 69.6, up from 68.8 in May and above last June's 61.1.
About the surveys
The Surveys of Consumers is a rotating panel survey at the University of Michigan Institute for Social Research. It is based on a nationally representative sample that gives each household in the coterminous U.S. an equal probability of being selected. Interviews are conducted throughout the month by phone. The minimum monthly change required for significance at the 95% level in the Sentiment Index is 4.8 points; for the Current and Expectations Index, the minimum is 6 points.
