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First Cut: Preliminary June Consumer Sentiment Index rolls back higher readings of May

The preliminary University of Michigan Consumer Sentiment Index for June was 97.9, rolling back almost all of the increase to 100.0 in May. Perceptions of current conditions improved to 112.5 in early June from 110.0 in May while those for six months from now declined to 88.6 from 93.5 in the prior month.

While consumers find much to support confidence in the strong labor market and falling gasoline prices, the prospect of a jump in tariffs for trade with China has once more diminished the outlook, especially after May reflected hopes that these could be averted.

Levels of consumer confidence remain quite high in the historical context, but there is a sense that the best economic conditions are past and growth with its attendant prospects will be more lackluster.

After a brief uptick in May, inflation expectations have lost ground again. The 1-year measure — which often fluctuations on gasoline prices and which are moving down again — declined four-tenths to 2.6%, similar to the readings in the December-April period. The 5-year measure — which is more closely watched by the FOMC — also dipped four-tenths and reached a series low of 2.2%. This will raise concerns about the credibility of the Fed’s 2% inflation objective and whether expectations are losing their anchor to the downside. It is far too soon to reach that conclusion and it is probable the readings will be revised up when the final report is released at 10:00 ET on Friday, June 28.

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