University of Michigan’s Consumer Sentiment Index: June 2025 Rebound Signals Easing Tariff Fears, Lingering Caution

Consumer sentiment in the United States saw a strong rebound in June 2025, marking the first improvement in half a year, according to the University of Michigan’s Consumer Sentiment Index. The index jumped significantly from the previous month, far exceeding expectations. However, despite this encouraging gain, sentiment remains well below the post-election high recorded at the end of 2024.

Broad-Based Improvement Across Demographics

This month’s positive shift was not a mere blip, but a broad-based improvement seen across all major groups. Joanne Hsu, Director of the Surveys of Consumers, noted that improvements were unanimous, spanning all ages, income levels, political affiliations, and regions. Every component of the index rose, with robust gains in expectations for both short- and long-term business conditions. This widespread recovery suggests that Americans are not just weathering the storm, but responding to a perceived easing of economic pressures, especially those related to trade policy.

Easing Tariff Anxiety Drives Sentiment Shift

The improvement in sentiment follows a period of heightened anxiety caused by the announcement of steep tariffs earlier in the spring. The resulting policy uncertainty had weighed heavily on consumer outlooks. But recent developments—including a pause in further tariff escalations and some stabilization in trade relations—have played a significant role in helping consumers regain some confidence. While the most immediate fears have lessened, caution remains. Assessments of business conditions, personal finances, buying conditions for big-ticket items, labor markets, and the stock market are all still below levels seen at the end of last year.

Inflation Expectations Fall Sharply

A key factor behind the improved sentiment is a sharp drop in inflation expectations. Consumers’ expectations for inflation over the next year fell notably this month, reaching the lowest level in several months. Long-term inflation expectations also edged down. While these declines reflect a softening of fears about tariff-driven price increases, both measures remain higher than those seen in the latter half of last year. This suggests that concerns about the impact of trade policy on inflation have not disappeared.

Sentiment Still Below Pre-Tariff and Post-Election Highs

Despite the recent surge, the index remains well below its level from the end of 2024, when consumer sentiment experienced a post-election boost. The current reading is also low by historical standards, with sentiment still down compared to a year ago. This ongoing caution is a clear signal that consumers are not letting their guard down, reflecting their guarded views about the economy’s future and their financial prospects amid continued uncertainty about trade policy, inflation, and global events.

Director Joanne Hsu’s Perspective

Joanne Hsu emphasized that while consumers are less fearful than they were in the spring, “they remain very guarded for the future.” The improvement in sentiment was seen across all groups, but underlying caution persists due to unresolved trade issues and other economic risks.

Outlook

The June 2025 rebound in consumer sentiment is a welcome sign for the U.S. economy, indicating a collective sigh of relief as tariff anxieties recede. However, with the index still well below recent highs and inflation expectations remaining elevated, Americans remain wary. As trade negotiations and global uncertainties continue, consumer confidence is likely to remain sensitive to further policy changes and economic developments.

Summary:

• Consumer sentiment improved for the first time in six months, but it remains well below the levels seen in late 2024.
• Gains were seen across all demographic and political groups.
• Easing fears about tariffs and a drop in inflation expectations drove the improvement.
• Despite the rebound, caution persists, with sentiment and expectations still lower than a year ago.

Bottom Line:

The June 2025 Consumer Sentiment Index indicates a significant and broad-based improvement as Americans adjust to a less volatile trade environment. Yet, with sentiment still well below recent highs and inflation expectations elevated, caution remains the prevailing mood among U.S. consumers.

Source:

https://www.sca.isr.umich.edu

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