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Consumer sentiment improved in July as concerns over tariff-fueled inflation subsided and economic data remained positive.Key Takeaways
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The Michigan Consumer Sentiment survey increased to 61.8 in the preliminary July results, its highest level since February.
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Manufacturing surveys also reached their highest points in five months, showing that fears over tariffs may be subsiding as economic data continues to show improving conditions.
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President Donald Trump may make more tariff announcements before an Aug. 1 deadline, but economists said consumers appear to believe inflation impacts will be short-lived.
Tariffs may not be as terrifying for consumers and businesses as they once were, as a series of surveys show that sentiment is improving even as trade policy remains unsettled.
The Michigan Consumer Sentiment Index improved to 61.8 in the preliminary July reading, delivering the highest results since February for the closely watched survey that plunged amid a dizzying string of tariffs announcements by President Donald Trump.
The survey showed that consumer inflation expectations for the year ahead declined to 4.4% as fears over future price increases from tariffs faded. This follows a rise in June retail spending.
“Americans are noticing that the economy is resilient against so many headwinds. This is an encouraging sign for consumer spending, and it helps explain that the surprising bounce back in retail sales in June was part of a more confident consumer outlook,” said Heather Long, chief economist at Navy Federal Credit Union.
Manufacturing Surveys Part of Trend of Improving ‘Soft’ Data
Meanwhile, a pair of manufacturer surveys this week indicated that businesses also feel better about the economic environment.
The New York Federal Reserve’s Empire State Manufacturing Index gained 22 points in its July survey, while a similar survey by the Philadelphia Federal Reserve showed a similar increase. Both cited improved business activity and better sentiment over future business conditions.
The improvement of the “soft” data in survey results comes as “hard” economic data continues to indicate that inflation remains modest, the job market remains healthy and consumers continue to spend money.
“While tariffs and the administration’s recent new threats are casting a hovering cloud of uncertainty over attitudes, consumers and businesses aren’t as fearful now,” said Oren Klachkin, financial market economist for Nationwide. “Stock market gains, calmer inflation nerves and positive economic trends are instilling consumers with better attitudes.”
More Tariffs Announcements on the Horizon
However, the good vibes may not last.
Trump has announced that tariffs on Mexico, Canada, the European Union, and other trading partners could increase if deals aren’t reached before an Aug. 1 deadline. However, consumers could also factor those import taxes into their outlook.
Story Continues“Despite risks of rising consumer inflation in the next few months, consumers have well-anchored expectations that tariff inflation will be temporary, and that conditions should improve by the time we enter 2026,” said Jeffrey Roach, chief economist at LPL Financial.
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