By Andrew Moran
Stabilizing trade policy appears to have alleviated U.S. consumers’ concerns over inflation and the labor market, according to data from the Federal Reserve Bank of New York.
Following President Donald Trump’s April 2 tariffs announcement that upended international trade, business and consumer confidence surrounding prices, employment, and the broader economy deteriorated. However, a significant trade deal with the UK and a 90-day tariff pause with China may have assuaged these concerns.
According to the New York Fed’s May Survey of Consumer Expectations, the one-year inflation outlook declined to a three-month low of 3.2 percent in May from 3.6 percent in April.
Three- and five-year expectations dipped to 3 percent and 2.6 percent, respectively.
Across the U.S. marketplace, consumers are anticipating slower price gains in college, gasoline, medical care, and rent. However, over the next year, they expect food prices to increase by 5.5 percent, the highest rate since October 2023.
Americans are more confident about the labor market outlook in the year ahead.
The mean probability that the unemployment rate will be higher one year from now dropped below 41 percent from 44 percent. Respondents’ expectations of losing their jobs in the next 12 months also tumbled below 15 percent.
The one-year earnings growth projections increased to 2.7 percent from 2.5 percent.
Expected growth in household income edged up to 2.7 percent, below the trailing 12-month average of 3 percent. Household spending expectations slid to 5 percent, slightly above the trailing 12-month average of 4.9 percent.
In May, the U.S. economy added a better-than-expected 139,000 new jobs, and the unemployment rate held steady at 4.2 percent for the third consecutive month. Hourly wages also climbed at a higher-than-expected pace of 0.4 percent in May.
More households believe that their current financial situation has improved compared with a year ago and expect to be better off next year.
Optimism Gradually Returns
Various consumer surveys have revealed renewed but incremental optimism about the U.S. economy.
The revised May Consumer Sentiment Index by the University of Michigan was adjusted sharply higher because of developments in global trade.
“Sentiment had ebbed at the preliminary reading for May but turned a corner in the latter half of the month following the temporary pause on some tariffs on China goods,” Joanne Hsu, surveys of consumers director, said in the report.
The Conference Board’s Consumer Confidence Index also rebounded in May, fueled by the U.S.–China tariff pause. The monthly survey reported a decline in pessimism regarding business conditions and job availability, along with a rise in optimism about future income prospects.
White House officials, led by Treasury Secretary Scott Bessent, are in London to meet with their Chinese counterparts to discuss economic and trade policy.
Trump recently said the Chinese communist regime “totally violated” the May 12 deal. U.S. Trade Representative Jamieson Greer also told CNBC that Beijing has been “slow-rolling” its compliance with provisions of May’s trade truce.
In an interview with CNBC’s “Squawk Box” on June 9, National Economic Council Director Kevin Hassett said that the United States would center the meeting on shipments of rare earth minerals.
“The purpose of the meeting on June 9 is to make sure that they’re serious … to literally get handshakes from Bessent and Commerce Secretary Howard Lutnick and Greer, our three lead trade negotiators, and get this thing behind us,” Hassett said.
“Our expectation is that immediately after the handshake, any export controls from the U.S. will be eased, and the rare earths will be released in volume, and then we can go back to negotiating smaller matters.”
Despite an improving consumer outlook, many remain reluctant to make expensive purchases.
According to the May WalletHub Economic Index, the share of consumers planning to acquire an automobile, make a significant purchase, or buy a home over the next six months declined.
Overall, the index fell by 27 percent, demonstrating a paucity of positive views about consumers’ financial future, according to Chip Lupo, an analyst at WalletHub.
“People who have low financial confidence are likely to spend less money, make fewer large purchases, and pay down less debt than people with high confidence,” Lupo tols The Epoch Times. “As a result, when consumer sentiment experiences a significant decrease, that is negative for the economy.”
Incoming Data
But while inflation and job loss fears have been ubiquitous for much of the year, these concerns have yet to materialize in the hard data.
In addition to the employment numbers, inflation has slowed sharply and hovers slightly above the Federal Reserve’s 2 percent target. Truflation, a real-time running estimate that relies on a treasure trove of data points, suggests that the U.S. Inflation Index is below 2 percent.
This week, the May consumer price index report will be released. According to the Federal Reserve Bank of Cleveland’s Inflation Nowcasting model, the headline annual inflation rate is expected to be 2.4 percent, an increase from 2.3 percent in April. Core inflation, which strips out the volatile energy and food categories, is projected to dip to 2.7 percent from 2.8 percent.
The consensus forecast for the producer price index, a measure of prices paid by businesses for goods and services, is a modest 0.2 percent jump. Market watchers pay attention to the producer price index because it serves as a gauge of possible pipeline inflation.
“Not surprisingly, the biggest factor contributing to the current inflation is tariffs,” Jay Woods, chief global strategist at Freedom Capital Markets, wrote in a note emailed to The Epoch Times.
If the consumer price index comes in hotter than the market estimate, the reading may influence monetary policy strategies that “could throw cold water on the recent rally,” according to Woods.
The Fed will hold its two-day June policy meeting next week, and investors overwhelmingly believe that policymakers will leave interest rates unchanged. According to the CME FedWatch Tool, the central bank may not cut rates again until September.
“Inflation poses a greater risk to the U.S. economy than weakening employment … that seems to be what’s holding the Fed back from cuts,” Woods said.
