U.S. consumer sentiment weakened in June and long-term inflation expectations dropped to the lowest on record as the outlook for the economy dimmed amid President Donald Trump’s stepped-up trade war.

The University of Michigan’s preliminary sentiment index fell to 97.9 from 100 in May, slightly undershooting the median forecast in a Bloomberg survey of economists. The gauge of current conditions increased to 112.5 and the expectations index dropped to 88.6, according to the report Friday. Five years ago in June 2014 under President Barack Obama, the index was at 82.5.

Key Insights

  • The decline in sentiment suggests Trump’s decision to increase levies on imports from China and slowing job gains are weighing on consumer attitudes and potentially the spending that drives the economy. At the same time, the measure remains elevated, and a separate report this week showed the Bloomberg Consumer Comfort Index remained near an 18-year high.
  • Longer-term inflation expectations declined to 2.2% from 2.6% in May, the lowest since the survey began. Subdued inflation is one of the reasons investors are betting the Fed will lower interest rates this year. Policy makers will meet in Washington next week.
  • Negative mentions of tariffs were spontaneously made by 40% of respondents, up from 21% in May, the report said.
  • A separate report Friday showed U.S. retail sales rose 0.6% in May and the two prior months were revised higher, suggesting consumer spending is healthy enough to support the economy and easing the need for an imminent interest- rate cut by the Federal Reserve.
  • Interviews in the Michigan survey were conducted May 29 to June 12. That spanned the days during which Trump threatened to place tariffs on all Mexican goods and later announced an agreement on migrants called off those proposed levies.

Official’s View

“Consumer sentiment reversed the May gain due to tariffs as well as slowing gains in employment,” Richard Curtin, director of the University of Michigan consumer survey, said in a statement.

More Data Points

  • Consumers anticipate slower gains in prices. Inflation expectations for the year ahead fell to 2.6% from 2.9% in May.
  • A measure of buying conditions for household durable goods increased. Buying conditions for durables, houses and vehicles both improved. The report attributed stronger durable and vehicle buying to consumers making purchases ahead of expected price increases.

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