Reuters

(Reuters)

Consumer Sentiment Slips Slightly in June

Economic Indicators Dow Jones Newswires

U.S. consumers grew less optimistic in June, on worries that the economy's growth could slow in the next year. 

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The University of Michigan said Friday that its index of consumer sentiment fell to 93.5 in June from a May reading of 94.7. May's reading had been the highest level in 11 months, and economists surveyed by The Wall Street Journal had expected a more modest fall to 94.0. 

The fall was driven by a drop in the expectations index, while the current economic conditions index rose slightly from May's reading. 

"While no recession is anticipated, consumers increasingly expect a slower pace of economic growth in the year ahead," said Richard Curtin, the survey's chief economist. But he noted the sentiment index had fluctuated only mildly in the past 18 months, especially when compared with the more volatile path of gross domestic product. 

Several economists noted that consumers' expectations of inflation firmed, rising to 2.6% for both next year and over the long-term from lower readings in May and early June. 

Stephen Stanley, chief economist at Amherst Pierpont Securities, said this could be a "noteworthy development," as Federal Reserve officials have cited low inflation expectations as a key downside risk. 

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"The rebound should bring some assurance to the Fed," said Laura Rosner, economist at BNP Paribas. 

The drop in the headline index coincides with another gauge of consumer sentiment from the Conference Board, which showed confidence in the economy declining for a second straight month in May. 

Regardless of how they feel, consumers have been opening up their wallets in recent months. By several measures, spending has finally picked up. Personal spending rose 1.0% in April and retail sales advanced 0.5% in May, according to the Commerce Department. 

"The persistent strength in personal finances will keep the level of consumer spending at relatively high levels and continue to support an uninterrupted economic expansion," said Mr. Curtin. 

The uptick in spending came despite a dismal month for job creation, with the economy adding just 38,000 new jobs in May. 

That prompted fears of a slowdown in hiring as the job market tightens and corporate profits have been falling. Job growth averaged 116,000 in the past three months, roughly half the 2015 average monthly pace of 229,000. 

Federal Reserve Chairwoman Janet Yellen said earlier this week in testimony to Congress she expected "low oil prices and ongoing job gains should continue to support the growth of incomes and therefore consumer spending." She noted the recent surge in household spending, which led her "to be optimistic that we will see further improvements in the labor market and the economy more broadly." 

Write to Anna Louie Sussman at anna.sussman@wsj.com