Consumer sentiment remained elevated for the second consecutive month but remains worse than in December 2024, according to the University of Michigan’s Surveys of Consumers. Sentiment rose 1.6% in July from June, reaching a reading of 61.7 from 60.7. However, overall sentiment has been 17% beneath December’s reading, although it rebounded from April’s low when the market experienced a sharp downturn due to tariff fears.
“Although recent trends show sentiment moving in a favorable direction, sentiment remains broadly negative,” Surveys of Consumers Director Joanne Hsu said in the report. “Consumers are hardly optimistic about the trajectory of the economy, even as their worries have softened since April 2025.”
Inflationary fears declined for the second consecutive month as well, dropping from 5% in June to 4.5% in July after peaking at 6.6% in May, again, as a result of tariff uncertainty. Consumers believe inflation will wane in the long run for the third consecutive month, with the figure declining from 4% in June to 3.4% in July, which marks the lowest reading in 2025.
The Consumer Confidence Index, as reported by the Conference Board, rose 2 points to 97.2 in July, and June’s figure was revised to 95.2. The short-term outlook on the Expectations Index rose 4.5 points to 74.4, yet has been below the recession threshold of 80 since February. Business and labor market conditions, as measured by the Present Situation Index, fell 1.5 points to 131.5.
Yet, the Kansas City Fed noted that consumer sentiment is no longer an accurate reading for consumer spending. “Recent data suggest consumer sentiment has been declining for the past several months, signaling a potential slowdown in spending. However, most measures of actual spending, such as core retail sales and PCE, have remained relatively stable. This discrepancy raises the question of how useful consumer attitudes are in predicting actual spending,” the Fed questioned, later concluding, “Consistent with evidence from the prior 30 years, the near-term outlook for spending growth looks similar regardless of whether we account for the recent weakening in consumer sentiment.”
Federal Reserve Chair Jerome Powell also stated “the link between sentiment data and consumer spending has been weak. It’s not been a strong link at all…it wouldn’t be the case that we’re looking at [consumer sentiment] and just completely dismissing it. But it’s another reason to wait and see.”
Consumers are continually pessimistic, albeit less so, as prices remain elevated. We saw a sharp downturn in consumer sentiment with the peak in inflation during 2022. However, regardless of how one feels about the economy, consumers are forced to spend more on less. The FOMC will no longer use consumer sentiment as a strong gauge for future spending or GDP calculations since the correlation remains weak.
