Americans became noticeably more optimistic about the economy during the first half of July as declining gasoline prices eased some of the financial pressure facing households. However, that improvement could be short-lived if renewed conflict in the Middle East continues pushing energy costs higher.
The University of Michigan’s preliminary Consumer Sentiment Index climbed to 54.4 in July, representing a 9.9% increase from June’s final reading of 49.5. The index reached its highest level since February and came in above economists’ expectations of approximately 51.0.
Despite the monthly improvement, sentiment remained 11.8% below its July 2025 level of 61.7. The results indicate that consumers felt somewhat better than they did earlier in the year, but overall confidence remained weak compared with historical levels and conditions before the latest Middle East conflict.
Consumers’ assessment of current economic conditions improved even more sharply. That portion of the survey rose 15.1% from 47.7 in June to 54.9 in July. It was nevertheless 19.3% below its reading of 68.0 from one year earlier.
The index measuring expectations about the economy’s future increased 6.5% to 54.0, compared with 50.7 in June. That measure remained 6.4% below the 57.7 reported in July 2025.
All five major components included in the survey improved during the month. The largest advances involved consumers’ assessments of whether it was a good time to purchase durable goods and their expectations for business conditions over the coming year. Both measures increased by approximately 20%.
The rise in confidence was broadly distributed across the population. Improved sentiment was recorded among different age groups, income levels, wealth categories and political affiliations. Consumers without a bachelor’s degree experienced particularly strong gains.
Joanne Hsu, director of the University of Michigan’s Surveys of Consumers, attributed much of the improvement to the easing pressure motorists had recently experienced at gasoline stations. Even so, she cautioned that consumers remained frustrated by generally high prices and were far from enthusiastic about the economy.
Sentiment has recovered from the record low recorded in May, when the index fell to 44.8 as the conflict involving Iran caused energy prices to surge. However, confidence remains below the levels recorded before the war began.
The timing of the survey creates additional uncertainty about whether the July improvement can continue. Interviews were conducted from June 23 through July 13, and more than 70% were completed before the United States resumed strikes against Iran on July 7.
Those renewed attacks and the subsequent collapse of the ceasefire drove oil prices to a one-month high and caused gasoline prices to begin climbing again. Because consumer confidence is closely connected to what Americans pay at the pump, a sustained increase in fuel costs could reverse some of July’s gains.
Consumers’ expectations for inflation over the next year declined from 4.6% in June to 4.2% in July. Although that represented an improvement, the figure remained well above the 3.4% reported in February before the conflict began and exceeded every reading recorded during 2024.
Long-term inflation expectations were unchanged at 3.3%. That remained slightly above the range of 2.8% to 3.2% recorded throughout 2024.
The results suggest that lower gasoline prices can provide an immediate psychological lift for consumers, but the recovery in confidence remains fragile. Americans continue to face an elevated cost of living after several years of economic disruptions, and the direction of energy prices could determine whether sentiment continues improving or falls again.
Consumer-sentiment surveys have not consistently predicted future spending behavior in recent years. Households may continue purchasing goods and services even while expressing negative views about the economy. Nevertheless, the July survey shows that Americans remain highly sensitive to gasoline prices and broader inflation pressures.
Source: CNN
