US Consumer sentiment improved again in July, with the University of Michigan’s preliminary index rising from 49.5 to 54.4, its highest level since February. The gain was driven largely by easing gasoline prices in recent weeks, helping lift all five components of the survey. Buying conditions for durable goods and expectations for business conditions over the coming year each surged by around 20%, while sentiment improved broadly across age, income, wealth and political affiliations. Even so, overall confidence remained well below year-ago levels, underscoring that many households continue to feel the strain of elevated prices.
The survey suggests that softer energy costs provided a meaningful boost to consumer optimism, but that improvement may prove fragile. Interviews were conducted between June 23 and July 13, with more than 70% completed before the resumption of US strikes against Iran on July 7 and the subsequent rebound in gasoline prices. As a result, the latest reading may not fully capture the impact of renewed geopolitical tensions on household expectations, particularly if higher energy prices begin feeding back into broader inflation concerns.
Inflation expectations nevertheless moderated in July. Consumers’ one-year inflation outlook eased from 4.6% to 4.2%, though it remained well above the 3.4% reading recorded in February before the Iran conflict began and above levels seen throughout 2024. Longer-term inflation expectations were unchanged at 3.3%, remaining slightly above the 2.8% to 3.2% range prevailing last year. The combination of improving confidence and still-elevated inflation expectations suggests households are becoming less pessimistic about near-term economic conditions, but have yet to regain confidence that inflation will return sustainably to the Fed’s target.
Economic Data
| Indicator | Actual | Expected | Previous |
|---|---|---|---|
| Michigan Consumer Sentiment (Jul P) | 54.4 | 51.0 | 49.5 |
| Current Economic Conditions | 54.9 | — | 47.7 |
| Consumer Expectations | 54.0 | — | 50.7 |
| 1-Year Inflation Expectations | 4.2% | — | 4.6% |
| Long-Run Inflation Expectations | 3.3% | — | 3.3% |
Key Takeaways
- Consumer sentiment rose to its highest level since February.
- All five survey components improved, led by roughly 20% gains in buying conditions for durable goods and year-ahead business conditions.
- Confidence improved across age, income, wealth and political affiliations, with particularly strong gains among consumers without a bachelor’s degree.
- Despite the rebound, sentiment remained 11.8% below July 2025 levels, indicating consumers are still cautious.
- One-year inflation expectations eased from 4.6% to 4.2%, though they remain well above pre-Iran conflict and 2024 levels.
- Long-run inflation expectations were unchanged at 3.3%, staying above the 2.8%-3.2% range seen through most of 2024.
- The survey may understate the impact of renewed Middle East tensions, as more than 70% of interviews were completed before US strikes on Iran resumed on July 7.
