Over the past few years, there’s been a noteworthy paradox wherein public sentiment about the broader economy was largely negative, despite individuals generally feeling positive about their personal finances and a robust job market. However, this trend may now be changing.
The Conference Board, a nonprofit research organization, reported that its consumer confidence index jumped to 109.7 in June from 102.5 in May, the highest level since January 2022. This surge aligns with a similar boost detected by the University of Michigan’s consumer sentiment index earlier in June.
Several factors could be driving this shift. Gas prices have stabilized recently and remain below last year’s peaks, the stock market has experienced gains this year, the unemployment rate is low, and inflation has been decreasing. Furthermore, wage growth has outpaced rising prices, leading to an increase in real wages on average.
According to Dana Peterson, chief economist at The Conference Board, the gap between consumers who feel jobs are abundant versus those who think they’re scarce has expanded. This implies a positive sentiment about the strong labor market. Expectations for future business conditions and job opportunities over the next six months have also notably improved.
June might have marked a shift in Americans’ predominantly negative outlook on the economy. This change is supported by new data which elucidates the reasons behind it. The University of Michigan’s final consumer sentiment survey for June reported a 9% increase in overall sentiment and an even more substantial boost in future expectations.
A significant catalyst appears to be easing concerns about inflation. Expectations for inflation over the next year dropped sharply from 4.2% in May to 3.3% in June. In comparison, last year, the expected inflation was 5.3%.
Democrats and political independents saw the most significant improvement in sentiment, with indices rising from 76.9 to 84.3 and 55.5 to 61.5, respectively. In contrast, Republicans’ economic sentiment remained relatively low, with a slight increase from 45.6 to 46.4.
Joanne Hsu, director of the survey, suggested that this marked increase in optimism might stem from the resolution of the early-month debt ceiling crisis and easing inflation concerns.