Consumer Sentiment Rebounds in July as Inflation Expectations Ease — Evening Brief – 07.31.26

U.S. consumer sentiment improved sharply in July as inflation expectations moderated, although households continued to express concerns about purchasing power and persistently high prices. Separate labor data showed employee compensation costs increased slightly more than economists expected during the second quarter.

The University of Michigan’s Consumer Sentiment Index rose to a final July reading of 55.2, up from the preliminary estimate of 54.4 and June’s 49.5.

“Consumer sentiment confirmed its early-month reading, landing almost 12% above June,” Surveys of Consumers Director Joanne Hsu said. “Broad-based improvements were seen across all groups by income, education, wealth, age, and political party.”

Despite the rebound, sentiment remained 11% below its level a year earlier. The current economic conditions index increased to 54.8 from 47.7 in June, while the consumer expectations index climbed to 55.4 from 50.7.

One-year inflation expectations declined to 4.2% from 4.6% in June. Long-term inflation expectations held at 3.3%, above the 2.8% to 3.2% range recorded during 2024.

Consumers remain focused on “pocketbook issues like purchasing power,” while political and military developments have remained in the background, Hsu said.

Separately, the Labor Department’s Employment Cost Index increased 0.9% in the second quarter, exceeding the 0.8% consensus estimate and matching the first-quarter pace.

Wages and salaries rose 0.9% during the quarter, while benefit costs increased 1%. Total compensation costs for civilian workers advanced 3.4% from a year earlier, including a 3.2% increase in wages and salaries and a 3.8% rise in benefits.