Consumer sentiment climbs as rising wages offset inflation upturn
The numbers: University of Michigan consumer sentiment index rose to a 99.3 reading in June, a slight improvement as consumers noted wage gains while also noticing an increase in inflation.
Economists polled by MarketWatch expected a 98.5 reading.
What happened: There was a big gain in the assessment of current conditions, as that index rose to 117.9 from 111.8, but people grew more pessimistic about the future, as the expectations index fell to 87.4 from 89.1.
A record number of households mentioned recent income gains but households also expected the highest year-ahead inflation rate since 2015. The one-year ahead figure inched up to 2.9%, the highest reading since 2015, and the long-run expectations figure rose slightly to 2.6%, matching the highest reading since 2016.
The perception of wage gains come after the passage of a bill cutting taxes, with employers passing on those cuts by decreasing the withholding for federal taxes. Other reports also point to rising wages in a tight jobs market.
The big picture: The confidence report was yet another indicator pointing to an economy heating up with the unemployment rate at an 18-year low. The question is how aggressive the Federal Reserve will be in responding to this increase in activity. The Fed raised interest rates at its meeting this week.
What they’re saying: “Only when inflation and interest rates are expected to persistently exceed income and job prospects will consumers begin to curtail their discretionary spending. Indeed, greater certainty about future income and job prospects have become the main drivers of more favorable purchase plans,” said Richard Curtin, the survey’s chief economist.
Market reaction: The above-consensus reading did little to help the mood on Wall Street after the White House imposed tariffs on China, as the Dow Jones Industrial Average DJIA, -0.96% was down close to 200 points in morning action.
Steve Goldstein is MarketWatch's Washington bureau chief. Follow him on Twitter @MKTWgoldstein.
We Want to Hear from You
Join the conversation