Today’s University of Michigan Consumer Sentiment index beat expectations, coming in at 94.3 versus 94.7 in May and 94.0 expected this morning. As shown, consumers are broadly optimistic and the confidence index has been in a range similar to that of the last expansion’s peak for about two years now.

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The current conditions index was especially strong, shooting to a new expansion high for the month.  That’s despite worries over job creation and rising (though still low) gas prices, and largely confirms low jobless claims and moderately accelerating wage data. The current conditions index is now higher than 90% of prior readings dating back to 1978, which stands in stark contrast to the dim view of the global and US economies that professionals and the media often focus on – including us!

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The major piece of bad news in the report: inflation. Expectations for inflation over the five years starting five years from today fell to the lowest on record, 2.3%.  While that’s still above the FOMC’s target of 2% long-run inflation, it’s a continuation of a slide that’s been in place since 2014. While it may be easy to interpret the chart below as consumers expecting deflation, as Matthew Boesler of Bloomberg notes, the decline is mostly due to fewer consumers expecting very high inflation. That, combined with the still-over-2% level, is one small piece of solace for monetary hawks; the lower inflation expectations get, the more inclined the FOMC will be towards accommodative policy, all else equal.

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