Summary: University of Michigan consumer confidence index falls in June, reading less than expected; views of present conditions, future conditions both deteriorate; few changes in economy from May; short-term Treasury yields rise, longer-term yields fall; fed funds rate-cut expectations firm.
US consumer confidence started 2020 at an elevated level but, after a few months, surveys began to reflect a growing unease with the global spread of COVID-19 and its reach into the US. Household confidence plunged in April 2020 and then recovered in a haphazard fashion, generally fluctuating at below-average levels according to the University of Michigan. The University’s measure of confidence had recovered back to the long-term average by April 2021 but then it plunged again in the September quarter and remained at historically low levels through 2022 and 2023.
The latest survey conducted by the University indicates confidence among US households has deteriorated further in June. The preliminary reading of the Index of Consumer Sentiment registered 65.6, noticeably less than the 73.0 which had been generally expected and down from May’s final figure of 69.1.
Consumers’ views of current conditions and their views of future conditions both deteriorated relative to those held at the time of the May survey.
“Assessments of personal finances dipped, due to modestly rising concerns over high prices as well as weakening incomes,” said the University’s Surveys of Consumers Director Joanne Hsu. “Overall, consumers perceive few changes in the economy from May.”
Short-term US Treasury bond yields crept a little higher while longer-term yields fell on the day. By the close of business, the 2-year yield had added 1bp to 4.71%, the 10-year yield had lost 2bps to 4.22% while the 30-year yield finished 5bps lower at 4.35%.
In terms of US Fed policy, expectations of a lower federal funds rate in the next 12 months firmed, with at least four 25bp cuts currently factored in. At the close of business, contracts implied the effective federal funds rate would average 5.295% in August, 3bps less than the current spot rate, 5.23% in September and 5.05% in November. June 2025 contracts implied 4.29%, 104bps less than the current rate.
It was once thought less-confident households are generally inclined to spend less and save more; some decline in household spending could be expected to follow. However, recent research suggests the correlation between household confidence and retail spending is quite weak.