US consumer confidence improves for the first time in six months, but consumers still believe the economy faces downside risks

As trade tensions eased, US consumer confidence improved for the first time in six months, and pessimism over soaring underlying inflation also significantly abated.

Data released by the University of Michigan on Friday showed that the preliminary consumer confidence index for June stood at 60.5, up 16% MoM and higher than the expected 54. This marked the first increase in consumer confidence since December last year.

Joanne Hsu, director of the University of Michigan's Surveys of Consumers, said that consumers appeared to have recovered to some extent from the shock of the extremely high tariffs announced in April and the policy fluctuations that followed in subsequent weeks. However, consumers still believe that the economy faces broad downside risks.

Nevertheless, consumer confidence remains about 20% lower than it was in December last year, and Americans could become nervous again if trade conflicts flare up anew.

In addition, all five index components rose, with particularly large increases in short- and long-term expectations for business conditions, consistent with the perception that tariff pressures have eased somewhat.

Their views on business conditions, personal finances, purchasing conditions for big-ticket items, the labour market, and the stock market are all significantly lower than they were in December 2024, six months ago. Despite the notable improvement in the economy this month, consumers remain cautious and worried about the economic trajectory.

So far, the Trump administration has made little progress in trade negotiations, and with reciprocal tariffs set to be re-imposed on July 8, Trump has less than a month to consult with over a hundred trading partners.

Notably, Trump's tariff plans have also encountered obstacles at home. Previously, the US Court of International Trade suspended almost all tariffs targeting specific countries on the grounds that Trump had overstepped his authority. However, the US Court of Appeals for the Federal Circuit later granted the Trump administration's request to temporarily stay the trade court's ruling that prohibited the enforcement of multiple tariff executive orders issued by the US government.

The trade war initiated by Trump has influenced Americans' attitudes toward the economy, raising questions about what it means for consumer spending, the lifeblood of the US economy. Consumer sentiment has notably weakened, but in recent years, it has not been a reliable indicator for predicting future consumer spending.

Data released simultaneously showed that the US one-year inflation rate expectation fell to 5.1% this month from 6.6% last month, and long-term inflation expectations declined for the second consecutive month, dropping to 4.1% from 4.2% in May. Both indices are at their lowest levels in three months.

Hsu pointed out that consumers' concerns about the potential impact of tariffs on future inflation eased in June. Despite this, inflation expectations remain higher than the levels in the second half (H2) of 2024, reflecting widespread belief that trade policies may still lead to higher inflation in the coming year.

Data released by the US Department of Labor this week showed that consumer prices rose 0.1% in May from the previous month, a smaller increase than market expectations, and concerns that tariffs implemented by Trump would start to drive up prices did not materialize. However, economists generally still expect tariffs to push up prices in the coming months.

Mild inflation data has led Trump and other White House officials to once again call on the US Fed to cut interest rates. Trump wrote on Truth Social, "Great inflation numbers! The Fed should cut interest rates by a full percentage point."