Consumer Sentiment Climbs After Three-Month Slide as Gas Prices Ease

Americans Experience First Sentiment Boost Since February

Americans may finally feel a bit better about the economy. The University of Michigan’s latest survey revealed that consumer sentiment rose 9% to a preliminary reading of 48.9 early this month, marking the first increase since February. The improvement comes after months of relentless pressure on household budgets driven by wartime energy price shocks. The rebound from historic lows stems largely from recent relief at the gas pump after the United States and Israel’s destabilizing war with Iran sent global energy prices surging.

The survey snapped three consecutive months of dampening consumer sentiment by recovering from an all-time low in May, according to data from the university, which has conducted the survey for the past 80 years. Gas prices heavily influence people’s perception of the economy, and they climbed in the several weeks after the war began, pushing sentiment down to a record low-twice. Gas prices have declined in recent weeks, which helped sentiment recover and lifted spirits across the nation.

“This month, consumer sentiment ticked up… with consumers experiencing some relief due to the early-month easing in gasoline prices,” Joanne Hsu, the surveys’ director, said in a release.

Lower-Income Households See Strongest Recovery

The improvement in sentiment proved widespread, appearing across age groups, education levels, and political parties, Joanne Hsu noted in a statement. Overall assessments and expectations of personal finances and business conditions all rose in June. Lower-income consumers exhibited a particularly strong sentiment increase, consistent with the fact that gasoline comprises a larger share of their budgets. This demographic group faces disproportionate pressure when fuel costs spike, making them especially sensitive to price fluctuations at the pump.

The reading exceeded economists’ expectations, offering a glimmer of hope after months of deteriorating consumer confidence. Sentiment finally moved up from a level lower than anything Americans experienced during foreign wars. The depth of consumer pessimism surpassed levels seen during the September 11 attacks, the Great Recession, the pandemic, and any prior bouts of high inflation in the post-World War II era. Such extreme negativity reflects the compounding effect of multiple economic shocks hitting households in rapid succession without adequate time for recovery between crises.

Oil Supply Disruption Drives Energy Price Volatility

The Middle East conflict prompted the Iranian closure of the Strait of Hormuz, a maritime trading route that facilitates the transport of about one-fifth of global oil supply. This strategic chokepoint normally allows oil tankers to flow freely, connecting major producing regions with global markets. The standoff triggered one of the largest oil shocks ever recorded, sending gasoline prices higher and reverberating through consumer budgets nationwide. Sentiment will likely remain in the dumps unless gas prices continue to fall meaningfully, likely requiring the strait to reopen fully.

Drivers stung by high gas prices have enjoyed some welcome relief over recent weeks, however, even as the impact of the Iran war continues to choke off oil supply. The national average price of a gallon of gas stands at $4.10, marking a decline of 40 cents, or 8.8%, over the past month, AAA data showed. Gas prices, however, remain $1.12 higher than where they stood before the Iran war, keeping pressure on household budgets despite the recent easing.

Inflation Expectations Continue Rising Despite Relief

The fresh sentiment figure comes days after a government report on inflation showed the pace of price increases exceeded 4% for the first time in three years. Prices rose 4.2% in May compared to a year earlier, increasing 0.5% from the prior month, according to U.S. Bureau of Labor Statistics data. These persistent price pressures compound the affordability challenges consumers face, though there are signs households may be getting used to the new normal of elevated costs.

Consumers expect inflation to move higher over the next year, hitting a pace of 4.8% by the end of the period, the University of Michigan survey showed. This expectation reflects ongoing concerns about supply chain constraints, energy costs, and broader economic uncertainties. Inflation expectations matter because they can become self-fulfilling prophecies when businesses and workers incorporate anticipated price increases into wage demands and pricing decisions.

Years of Compounding Economic Shocks Take Their Toll

Sentiment continues going through a years-long rough patch for a number of reasons, but it mainly stems from the price shocks of recent years compounding to worsen affordability. Americans have endured several back-to-back historic events affecting the economy. That reality means there really hasn’t been a long and sustained period of rising sentiment to recover from the economic shocks households have faced. The cascade of crises started with the pandemic recession, which knocked sentiment down. Americans experienced the longest economic expansion on record at the time before that downturn struck.

Post-pandemic inflation then reared its ugly head, prompting sentiment to plunge to unprecedented depths as households struggled with rapidly rising costs for essentials. The Federal Reserve launched rate hikes to tame inflation, adding mortgage and borrowing cost pressures to the mix. A standoff in Congress over the debt ceiling created additional uncertainty about the government’s ability to meet its obligations. Each crisis layered onto the previous ones, preventing the sustained recovery that typically follows economic downturns.

Consumer Spending Holds Key to Economic Outlook

Consumer spending, which accounts for about two-thirds of U.S. economic activity, could weaken if shopper sentiment remains lackluster. Household purchasing decisions drive business investment, employment levels, and overall economic growth, making consumer confidence a critical indicator for policymakers and business leaders. Spending slowed over the first three months of the year compared to the previous three-month period, according to government data issued earlier this year. The economy remained solid at the outset of this year, however, with strength in labor markets and business investment helping offset some consumer weakness.

Experts say sentiment will likely remain depressed unless gas prices continue to drop significantly and households gain confidence that inflation pressures are truly easing. The path forward depends heavily on geopolitical developments, particularly the resolution of conflicts affecting global energy markets. Until consumers experience sustained relief from the compounding price pressures that have defined recent years, sentiment may struggle to return to pre-crisis levels. The modest improvement in the latest survey offers hope but hardly signals a return to economic optimism.