The Economic News Has Been Almost All Good and Consumers Can Feel It

Consumer sentiment jumped 11% in July as inflation kept slowing and the economy kept growing.

The University of Michigan's Consumer Sentiment Index for the month rose to 71.6 from 64.4 in June. Economists had expected consumers to be a bit more optimistic, forecasting the index at 72.6, according to estimates gathered by FactSet.

"The sharp rise in sentiment was largely attributable to the continued slowdown in inflation along with stability in labor markets," said Joanne Hsu, the survey's director.

The results were in line with another measure, the Conference Board's Consumer Confidence Index  which rose to 117 in July, up from 109.7 in June. The index measures consumer attitudes and plans on spending, vacations as well as their expectations for inflation, the stock market and interest rates.

Despite the economic travails that followed the pandemic, millions have been willing to splurge on entertainment and experiences. Most notably this summer, its been tickets to see Taylor Swift and Beyoncé concerts and the blockbuster "Barbie" movie.

The multi-city concerts have brought free-spending tourists to town, boosting everything from hotels and restaurants to airlines, rental cars and ride-shares.

"The economic dynamics shift into high gear when a Taylor Swift show comes to town," Moody's Analytics economist Thomas LaSalvia wrote in a recent note, aptly titled Swiftflation - An Unprecedented Boost.

Similarly, "Barbie" has driven massive merchandise sales and a run-up in toymaker Mattel's stock.

It's just another sign that Americans' economic outlooks are markedly brighter this year. The consumer sentiment gauge is up 39% year-over-year. Consumers' assessments of current economic conditions are up 31.8% year-over-year. And their expectations for the year ahead are up 44.4% year-over-year.

Year-ahead expectations for inflation, however, inched up in July to 3.4% to from 3.3% in June.

Inflation, however, has been coming down. It's now running at 3%, according to the latest reading on the Consumer Price Index, down substantially from its peak of 9.1% in June 2022.

Another report out Friday, showed a considerable decline in inflation, as well. The personal consumption expenditures index rose rose only 3% in June over the previous 12 months, compared to a 3.8% year-over-year rise in May.

There was also a decline in core inflation, which excludes volatile food and energy categories, and serves as the favorite inflation gauge for the Federal Reserve. The central bank has raised interest rates 11 times since March 2022 to slow the economy and bring down inflation.

Consumers may also be feeling better now that a long-predicted recession following the pandemic recovery has never emerged. A report from the Commerce Department on Thursday showed the economy grew by a better-than-expected 2.4% annualized pace in the second quarter.

Despite the Fed's successes in bringing down inflation without slowing the economy too much, many market observers say policymakers still have further to go to bring inflation down to their target rate of 2%.

"It is one thing to applaud that core inflation is edging lower, but another for the Fed to declare victory when it remains stubbornly double the Fed's desired long-term goal of 2%," said Quincy Krosby, chief global strategist for LPL Financial in Charlotte, N.C.