Consumer sentiment bounced off a historical low to 51.1 in July from 50.0 in June as gasoline prices eased markedly.
That resulted in lower readings for inflation expectations for both the short-term one-year outlook and the long-term five- to 10-year expectations, according to survey data released by the University of Michigan on Friday.
The drop in long-term inflation expectations was quite significant, down to 2.8%, the lowest in about a year, from 3.1%. The data has been one of the Federal Reserve’s main focuses in its fight against inflation.
This decline in expectations should help to temper some calls for a jumbo 100 basis-point rate hike by the Fed at the end of the month. On top of that, the drop should help to reestablish the trust in the Fed’s ability to control inflation as expectations stay well-anchored.
The improvement in sentiment was also joined by a rise in buying intentions, adding some good news to spending for the start of the third quarter.
But with sentiment still near a record low, the Fed should not lose sight of the task at hand as inflation remains consumers’ top concern.
In a separate report from the Federal Reserve on Friday, the industrial sector began to show signs that the peak might have passed as production declined in June for the first time since December.
Strong mining growth because of incentives from elevated energy prices was not enough to offset drops in manufacturing and utility production as the economy continued to slow down.
Manufacturing output fell by 0.5% for the second straight month on declines in automobile and machinery production. Consumer goods dropped by 0.7% in back-to-back months, most likely because of the buildup in inventories in recent months.
While data on retail sales showed an upside surprise on Friday, most of the gains were driven by changes in price level, not volume.
Mining surged by 1.7% on the month, yet is likely to fall significantly in July as oil and commodity prices decline.