‘Consumer Confidence Has Stabilized Since May’

American consumers grew slightly more optimistic in July, but the two major nationwide surveys show that their mood is not nearly as expansive as it was at the start of the year. The Conference Board said its Consumer Confidence Index rose by 2 points, to 97.2, from a slightly upwardly revised 95.2 in June, and the University of Michigan said its Consumer Sentiment Index climbed just 1 point, to 61.7. The Conference Board’s index was 7 points higher in January, and the university’s gauge was more than 9 points higher at that time.

“Consumer confidence has stabilized since May, rebounding from April’s plunge, but remains below last year’s heady levels,” Stephanie Guichard, senior economist, global indicators, at The Conference Board, stated in a press release. “In July, pessimism about the future receded somewhat, leading to a slight improvement in overall confidence. … All three components of the Expectations Index improved, with consumers feeling less pessimistic about future business conditions and employment, and more optimistic about future income.”

The think tank said its expectations gauge, though it improved by 4.5 points, to 74.4, remained below 80, and that kind of result typically signals that a recession is on the way. “Meanwhile, consumers’ assessment of the present situation was little changed,” Guichard said. “They were a tad more positive about current business conditions in July than in June. However, their appraisal of current job availability weakened for the seventh consecutive month, reaching its lowest level since March 2021. Notably, 18.9% of consumers indicated that jobs were hard to get in July, up from 14.5% in January.”

The think tank said July’s modest improvement in the overall index was mostly attributable to consumers older than 35. All income groups were more optimistic except for households where income was less than $15,000 a year. Republicans were more upbeat during the month, and the mood among Democrats and independents was stable.

“Consumers’ write-in responses showed that tariffs remained top of mind and were mostly associated with concerns that they would lead to higher prices,” Guichard said. “In addition, references to high prices and inflation rose in July, even though consumers’ average 12-month inflation expectations eased slightly, to 5.8%, down from 5.9% in June and a peak of 7% in April. A number of survey respondents mentioned the recent budget reconciliation legislation passed by Congress — referring to it as the Big Beautiful Bill — with some consumers praising its potential positive economic impact and others expressing concerns. However, the bill and its implications were relatively low on the list of themes that consumers were focused on in July.”

The Conference Board said consumers’ plans for purchasing big-ticket items were “mixed,” especially for appliances. Purchasing plans for cars and homes declined “but remained stable on a six-month moving average basis.”

Meanwhile, the University of Michigan’s index climbed to a five-month high in July, but it proved to be an effort to get there. “Current conditions rose about 5%, to its highest reading since February, while the expectations index fell slightly,” Joanne Hsu, director of the university’s Surveys of Consumers, stated in a press release. “A rise in sentiment among stockholders was partially offset by a decline among consumers who do not own stocks.

“Perceptions of this month’s economic developments were similar across the political spectrum: Republicans, independents and Democrats all saw some minor increases in sentiment [in July],” Hsu added. “Although recent trends show sentiment moving in a favorable direction, sentiment remains broadly negative. Consumers are hardly optimistic about the trajectory of the economy, even as their worries have softened since April.”

Hsu said consumers’ year-ahead expectations for inflation fell for a second successive month, from 5% in June to 4.5% in July, although both forecasts are for a rate sharply higher than the current 2%-plus figure. Nonetheless, the reading was the lowest since February.

The Commerce Department said consumer spending in June rose 0.3% after being flat the previous month. Adjusted for inflation, spending was up just 0.1%. “While consumer spending has thus far held up, supported by solid income gains, it now faces mounting headwinds from a cooling labor market and renewed inflationary pressures,” Gregory Daco, chief economist at EY-Parthenon, told Reuters.

Inflation climbed in June because tariffs raised prices for imported goods. The government says the Personal Consumption Expenditures Price Index, the Federal Reserve’s preferred inflation gauge, rose 0.3% after an upwardly revised 0.2% increase in May. In the 12-month period through June, the PCE index rose 2.6% after advancing by 2.4% the previous month. The Fed is trying to get the rate of inflation down to 2%.

“The Fed is unlikely to welcome the inflation dynamics currently taking hold,” Olu Sonola, head of U.S. economic research at Fitch Ratings, told Reuters. “Rather than converging toward target, inflation is now clearly diverging from it. This trajectory is likely to complicate current expectations for a rate cut in September or October.”

The core PCE price index, which strips out the volatile food and energy categories, rose as the broader index did — by 0.3% in June after a 0.2% gain in May. In the 12-month period through June, core PCE inflation rose 2.8% after an identical gain in May. Also the government said personal income rose 0.3% in June and that the savings rate was flat at 4.5%.

The Conference Board said its Leading Economic Index declined 0.3% in June, to 98.8, after no change in May (an improvement from the 0.1% decline that was originally reported). The think tank said the index fell 2.8% during the first half of the year, more than double the 1.3% drop in the second half of last year.

“The U.S. LEI fell further in June,” Justyna Zabinska-La Monica, senior manager, business cycle indicators, at The Conference Board, stated in a press release. “For a second month in a row, the stock price rally was the main support of the LEI. But this was not enough to offset still very low consumer expectations, weak new orders in manufacturing, and a third consecutive month of rising initial claims for unemployment insurance.

“In addition, the LEI’s six-month growth rate weakened, while the diffusion index over the past six months remained below 50, triggering the recession signal for a third consecutive month,” she added. “At this point, The Conference Board does not forecast a recession, although economic growth is expected to slow substantially in 2025, compared to 2024. Real GDP is projected to grow by 1.6% this year, with the impact of tariffs becoming more apparent in [the second half of the year] as consumer spending slows due to higher prices.”

The Commerce Department said the U.S. gross domestic product grew 3% in the second quarter after a sluggish advance of 0.5% in the first quarter. Among consecutive quarters, though, the combined gain of 1.2% was the weakest since the Covid-19 pandemic.

Consumer spending, the economy’s main engine, sputtered to a 1.4% advance in the second quarter. “The picture is not pretty, an own goal by U.S. policymakers,” Freya Beamish, chief economist at TS Lombard, told Reuters. “An economy that was purring along, defying expectations of a slowdown, has been placed on hold.”

The mood at the nation’s small businesses was stable in June. The National Federation of Independent Business said its Small Business Optimism Index edged down 0.2 points, to 98.6, keeping it slightly above the 51-year average of 98. The trade group’s Uncertainty Index, meanwhile, fell 5 points, to 89, indicating that member business owners’ outlook had improved.

Nineteen percent of owners reported that taxes were their single, most important problem, up 1% from the previous month. The last time taxes were seen as the top problem by that many members was in July 2021. “Taxes remain the top issue on Main Street, but many others are still concerned about labor quality and high labor costs,” Bill Dunkelberg, NFIB’s chief economist, stated in a press release. Labor quality ranked second on the list of problems, at 16%.

NFIB said the net percentage of member owners who expect the economy to improve in the coming months fell 3 points, to a net 22%, seasonally adjusted. The trade group said that, historically, that is still a positive reading.

A seasonally adjusted 36% of owners reported job openings that they could not fill in June, up 2% from the previous month. A net 33%, also seasonally adjusted, reported raising pay in June, up 7% from May.