Are consumers growing more optimistic or more pessimistic about the direction of the U.S. economy? It depends on whether their focus is inflation or the labor market. The nation’s two major confidence surveys usually don’t diverge, or if so not by much, but their results sharply differed in June.
The University of Michigan’s Consumer Sentiment Index “surged” during the month, in the words of its surveys director, while The Conference Board’s Consumer Confidence Index “weakened,” in the assessment of one of its senior economists. Taken together, the results portray a populace that still has plenty of concerns about one aspect of the economy or another, and appears unlikely to spend freely in the months ahead.
The University of Michigan’s index rose 8.5 points, to 60.7, although that still left it well below its December level of 74. “Consumer sentiment surged 16% from May in its first increase in six months — confirming the midmonth reading — but remains well below the post-election bounce seen in December 2024,” Joanne Hsu, director of the university’s Surveys of Consumers, stated in a press release. “The improvement was broad-based across numerous facets of the economy, with expectations for personal finances and business conditions climbing about 20% or more.
“Despite June’s gains, however, sentiment remains about 18% below December 2024, right after the election; consumer views are still broadly consistent with an economic slowdown and an increase in inflation to come,” Hsu added. “Consumers continue to be concerned about the potential impact of tariffs, but at this time they do not appear to be connecting developments in the Middle East with the economy.”
Hsu said survey respondents’ year-ahead inflation expectations “plummeted” from 6.6% in May to 5% in June. “Long-run inflation expectations receded for the second straight month, falling back from 4.2% in May to 4% in June,” she said. “Both readings are the lowest in three to four months. Consumers’ fears about the potential impact of tariffs on future inflation softened somewhat in June. Still, inflation expectations remain above readings seen throughout the second half of 2024, reflecting widespread beliefs that risks to inflation have not fully abated.”
Respondents to The Conference Board’s survey were more concerned about the difficulty of getting a job. The Consumer Confidence Index declined 5.4 points in June, to 93, from a slightly upwardly revised 98.4 in May. The May figure represented a sharp 12.7-point gain from April. “Consumer confidence weakened in June, erasing almost half of May’s sharp gains,” Stephanie Guichard, senior economist, global indicators, at The Conference Board, stated in a press release. “The decline was broad-based across components, with consumers’ assessments of the present situation and their expectations for the future both contributing to the deterioration.
“Consumers were less positive about current business conditions than May,” Guichard added. “Their appraisal of current job availability weakened for the sixth consecutive month but remained in positive territory, in line with the still-solid labor market. The three components of the Expectations Index — business conditions, employment prospects and future income — all weakened. Consumers were more pessimistic about business conditions and job availability over the next six months, and optimism about future income prospects eroded slightly.”
The Conference Board said the drop in confidence occurred among all age groups and nearly all income groups. People of all political affiliations were less hopeful, particularly Republicans. “Consumers’ write-in responses revealed little change since May in the top issues impacting their views of the economy,” Guichard said. “Tariffs remained on top of consumers’ minds and were frequently associated with concerns about their negative impacts on the economy and prices.
“Inflation and high prices were another important concern cited by consumers in June,” she added. “However, there were a few more mentions of easing inflation, compared to last month. This is in line with a cooling in consumers’ average 12-month inflation expectations to 6% (down from 6.4% in May and 7% in April). References to geopolitics and social unrest increased slightly from previous months but remained much lower on the list of topics affecting consumers’ views.”
The think tank said consumers’ purchasing plans for cars were steady and at their highest level since December, but plans for home-buying declined. Compared with May, “more consumers were undecided about plans to buy big-ticket items overall,” The Conference Board said.
The Commerce Department said consumer spending, which represents about two-thirds of the economy, fell in May for the second time this year, dropping 0.1% after a 0.2% increase in April, but the decline was not seen as likely to nudge the Federal Reserve to cut its benchmark interest rate, as President Donald Trump has been pressuring it to do.
“The report is a wash for the Fed and won’t alter its wait-and-see stance,” Sal Guatieri, a senior economist at BMO Capital Markets, told Reuters. “The pullback in spending in May partly reflects payback from earlier tariff front-running, while the slightly warmer core price increase doesn’t settle the debate about how much tariffs will impact inflation.”
Guatieri was referring to an increase in inflation in May, as measured by the Personal Consumption Expenditures Price Index, the Fed’s preferred inflation gauge. The index rose 0.1%, the same as it did in April. In the 12-month period through May, the PCE index rose 2.3% after climbing 2.2% the previous month. The Fed is trying to get inflation down to 2%.
The core PCE price index, which strips out the volatile food and energy categories, rose 0.2% in May after a 0.1% gain the previous month. In the 12-month period through May, the core rate rose 2.7% after increasing 2.6% in April.
The government said personal income fell 0.4% in May, the largest decline since September 2021. The Conference Board said its Leading Economic Index edged lower in May, slipping 0.1%, to 99, after declining 1.4% the previous month in a revision that worsened the dip from an originally reported 1%.
“The LEI for the U.S. fell again in May but only marginally,” Justyna Zabinska-La Monica, senior manager, business cycle indicators, at The Conference Board, stated in a press release. “The recovery of stock prices after the April drop was the main positive contributor to the index.
“However, consumers’ pessimism, persistently weak new orders in manufacturing, a second consecutive month of rising initial claims for unemployment insurance and a decline in housing permits weighed on the Index, leading to May’s overall decline.
“With the substantial negatively revised drop in April and the further downtick in May, the six-month growth rate of the index has become more negative, triggering the recession signal,” Zabinska-La Monica added. “The Conference Board does not anticipate recession, but we do expect a significant slowdown in economic growth in 2025 compared to 2024, with real GDP growing at 1.6% this year and persistent tariff effects potentially leading to further deceleration in 2026.”
The Commerce Department said in late June that the U.S. GDP shrank by a downwardly revised 0.5% during the first quarter of the year. A late May estimate had said GDP declined by a less significant 0.2%. The revision was attributable to weak consumer spending, which the government said probably grew by just 0.5% instead of the 1.2% reported previously. By contrast, GDP grew at a 2.4% pace during the fourth quarter last year. GDP suffered in the first quarter particularly because businesses rushed to import a lot of goods before President Trump’s tariffs took effect.
The mood at the nation’s small businesses improved in May. The National Federation of Independent Business said its Small Business Optimism Index rose 3 points, to 98.8, putting it slightly above the 51-year average of 98. The trade group’s Uncertainty Index rose 2 points, to 94, pushing it further above its historical average of 68.
“Although optimism recovered slightly in May, uncertainty is still high among small-business owners,” NFIB chief economist Bill Dunkelberg stated in a press release. “While the economy will continue to stumble along until the major sources of uncertainty are resolved, owners reported more positive expectations on business conditions and sales growth.”
Eighteen percent of member business owners cited taxes as their most important business problem, marking the first time that taxes ranked as the single biggest problem for NFIB members since December 2020. Labor quality ranked second on the list of top problems, at 16%. NFIB said the net percentage of member business owners who expect the economy to improve in the coming months rose 10%, to a still low 25%.
A seasonally adjusted 34% of owners reported job openings that they could not fill in May, a tally that was unchanged from April. A net 26%, also seasonally adjusted, reported raising pay in May, down 7% from the previous month.
Confidence among the nation’s home builders continued to decline in June. The National Association of Home Builders said its NAHB/Wells Fargo Housing Market Index fell 2 points, to 32, after a 6-point drop in May. The trade group said the index has been lower than 32 only twice since 2012, and one of those occasions came at the start of the Covid-19 pandemic in April 2020.
“Buyers are increasingly moving to the sidelines due to elevated mortgage rates, and tariff and economic uncertainty,” NAHB chairman Buddy Hughes, a home builder and developer from Lexington, N.C., stated in a press release. “To help address affordability concerns and bring hesitant buyers off the fence, a growing number of builders are moving to cut prices.”
The HMI’s latest survey found that 37% of builders reported cutting prices in June — the highest percentage since the trade group started to track the figure monthly in 2022. “Rising inventory levels and prospective home buyers who are on hold, waiting for affordability conditions to improve, are resulting in weakening price growth in most markets and generating price declines for resales in a growing number of markets,” NAHB chief economist Robert Dietz stated in a press release. “Given current market conditions, NAHB is forecasting a decline in single-family starts for 2025.”
All three HMI component indexes were lower in June. The index that gauges current sales conditions fell 2 points, to 35; the component that measures sales expectations in the next six months slipped by 2 points, to 40; and the gauge that charts the traffic of prospective buyers dropped by 2 points, to 21, its lowest reading since November 2023. Any number above 50 indicates that more builders view conditions as good than poor.
Unsurprisingly, the Commerce Department said sales of new homes plunged 13.7% in May, to a seasonally adjusted annual rate of 623,000. The pace was the slowest since last October. “On a year-to-date basis, new-home sales are 3.2% lower thus far in 2025,” Dietz, of NAHB, stated in a press release. “As a result of slowing home-sales conditions, inventory continues to rise, marking an elevated 9.8 months’ supply in May. Builders will be pulling back on construction in the months ahead due to this level of inventory.”
The government said the median new-home sales price in May was $426,600, up from $414,300 in the same month a year earlier. Existing home sales were, however, slightly higher in May. The National Association of Realtors says they rose 0.8%, to a seasonally adjusted annual rate of 4.03 million. Year-over-year, sales were down 0.7%.
“The relatively subdued sales are largely due to persistently high mortgage rates. Lower interest rates will attract more buyers and sellers to the housing market,” NAR chief economist Lawrence Yun stated in a press release. “Increasing participation in the housing market will increase the mobility of the workforce and drive economic growth. If mortgage rates decrease in the second half of this year, expect home sales across the country to increase due to strong income growth, healthy inventory and a record-high number of jobs.”
NAR said the total housing inventory registered nationally at the end of May was 1.54 million, up 6.2% from April and 20.3% from May 2024. Unsold inventory was at a 4.6-month supply at the current sales pace, up from 4.4 months in April. The median existing-home sales price was $422,800 in May, up 1.3% from the same month a year earlier.
