US consumer sentiment rises but tariffs weigh on optimism

US consumer sentiment rose this month amid more-favourable personal finances, while tariffs weighed on Americans’ optimism for the economy and helped boost inflation expectations to a three-year high, according to a University of Michigan report Friday.

The sentiment index rose to 99.3 (est. 98.5) from 98 in May, while the current conditions gauge, which measures Americans’ perceptions of their finances, advanced to 117.9, second- highest reading since 2000, from 111.8.

The expectations measure decreased to 87.4, a five-month low, from 89.1

The report showed a divergence in sentiment about the present and the future, with a record number of households mentioning recent income gains and contrasting with a pickup in inflation expectations. The economic outlook was “much more negative” among respondents who unfavorably mentioned the new tariffs, as the Trump administration imposed tariffs on metals imports from allies and prepared for levies on $50 billion of Chinese imports.

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Historically low unemployment

Even so, sentiment remains near the high for this expansion, as a tight labour market and historically low unemployment levels continue to buoy the US economy. That should help drive continued gains in consumer spending, the biggest part of the US economy.

Respondents anticipated an annual gain of 2.5 per cent in household incomes, the highest since 2008 and up from 1.6 per cent in May, the report showed. Almost all of the June gain came from people in the bottom two-thirds of incomes, reflecting job gains across the population.

"The continued small declines that are now anticipated in the unemployment rate as well as more robust gains in household income will bolster real personal consumption expenditures during the year ahead," Richard Curtin, director of the University of Michigan consumer survey, said in a statement. At the same time, "prospects for the economy have been negatively affected by the new trade policies". – Bloomberg