Consumer Sentiment Gauge Soars To 22-Month High In July, Inflation Expectations Surprise Higher

In the last nearly two years, optimism among U.S. consumers has never been as high as it is now.

The preliminary estimates of the University of Michigan Consumer Sentiment Index shows a spike from 64.4 in June to 72.6 in July, markedly beating expectations of 65.5.

This also marked the second straight increase in U.S. consumer sentiment, after the plunge suffered in May. At the same time, the University of Michigan consumer survey revealed that inflation expectations slightly increased.

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Key Highlights From June University Of Michigan Report:

• The overall index rose from 64.4 to 72.6 in July, up 12.7% monthly and 41% annually. The consumer sentiment gauge was the highest recorded since September 2021.
  
• Current economic conditions index surged from 69 in June to 77.5 in July, up 12.3% monthly and 33.4% annually. The reading was sharply higher than expectations of 70.4.
  
• The index of consumer expectations rose from 61.5 in June to 69.4 in July, up 12.8% monthly and 46.7% yearly. The print was sharply higher than the forecasted 61.8.
   
• The year-ahead inflation expectations ticked higher from 3.3% to 3.4%, above the expected 3.3%.
  
• Long-run inflation expectations also moved slightly higher from 3% in June to 3.1% in July, in line with the estimates.
  
• According to Surveys of Consumers Director Joanne Hsu, “sentiment climbed for all demographic groups except for lower-income consumers. The sharp rise in sentiment was largely attributable to the continued slowdown in inflation along with stability in labor markets.”

Market Reactions: U.S. Stocks Continue to Rise

 The SPDR S&P 500 ETF Trust SPY, which tracks the S&P 500 index, was 0.3% higher on Friday, on track to post its fifth straight session of gains.

The U.S. dollar index, the Invesco DB USD Index Bullish Fund ETF UUP, rose by a marginal 0.15% after posting six straight days of losses.

Traders slightly raised expectations on a second Fed rate hike in September, by assigning a 15% chance, up from 11% prior to the release, according to the CME Group FedWatch tool. 

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