U.S. consumer sentiment increased to a five-month high in July, but the improvement is likely temporary as renewed conflict in the Middle East raises gasoline prices. The University of Michigan’s Surveys of Consumers said on Friday its Consumer Sentiment Index rose to 54.4 this month, the highest reading since February, from a final reading of 49.5 in June.
Sentiment among American consumers improved in Jul-26 as the University of Michigan’s Jul-26 consumer sentiment index rose to a five-month high of 54.4 based on a preliminary reading, beating expectations of 51.0 on the back of lower pump prices. Crucially for monetary policymakers, this recovery in sentiment was accompanied by a welcome retreat in one-year inflation expectations to +4.2% (from +4.6%), while long-run expectations remained comfortably anchored at +3.3%.
In another release, US industrial output slowed to a +1.1%yoy expansion in Jun-26, down from a downwardly revised +1.6% in May-26. On the monthly basis, the industrial production grew by just +0.1%mom, missing the +0.2%mom consensus forecast. This near-flatline was anchored by stagnant manufacturing activity, as a -0.1%mom contraction in durable goods (led by wood products, machinery, and electrical equipment) completely offset a +2.1%mom surge in petroleum and coal-driven nondurables, masking a stronger +4.0% annualised output expansion for the broader second quarter.
The combination of cooling short-term inflation expectations and losing industrial momentum supports for the Fed to hold a steady, data-dependent posture rather than embark on aggressive policy tightening. MBSB noted that the latest US economic indicators suggest that while the domestic engine remains resilient, underlying momentum is cooling sufficiently to allow the US Fed to exercise patience rather than rush into rate hikes.
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