U.S. Consumer Sentiment Declined in Early June

A closely watched gauge of U.S. consumer sentiment dropped in early June, a sign that political tensions in Washington may be denting Americans' confidence in the economy. 

The University of Michigan on Friday said its preliminary June reading on consumer sentiment was 94.5, its lowest level since November and down from May's final figure of 97.1. Economists surveyed by The Wall Street Journal had expected a preliminary June reading of 97.0; the index was still up 1.1% in June from a year earlier. 

The report "suggests softening in consumer enthusiasm, although we expect that sentiment at these levels will still be supportive of consumer spending in the coming months," Barclays economist Blerina Uruci said in a note to clients. 

The survey's chief economist, Richard Curtin, said sentiment fell in response since June 8, the day former FBI director James Comey testified before Congress about events surrounding his firing last month by President Donald Trump. Mr. Curtin noted, however, that "only a few consumers spontaneously referred to him or his testimony when asked to explain their views." 

The Michigan sentiment survey in recent months has found a sharp partisan divide between pessimistic Democrats and optimistic Republicans. The post-June 8 drop in sentiment was largest among self-described independents, followed by Republicans, while Democrats saw a less-dramatic decline, according to Mr. Curtin. 

"This marks the first evidence that political turmoil in Washington could impinge on the economy, so gauges of consumer attitudes clearly bear watching," Amherst Pierpont Securities chief economist Stephen Stanley said in a note to clients. 

The index tracking consumer opinions about current economic conditions fell to 109.6 in June from 111.7 in May. The index tracking expectations about the future dipped to 84.7 from last month's 87.7. 

"The recent erosion of confidence was due to more negative perceptions of the proposed economic policies among Democrats and the reduced likelihood of passage of these policies among Republicans," Mr. Curtin said. 

Measures of U.S. consumer, business and investor sentiment all rose following last year's presidential election, though stronger sentiment failed to deliver strong household spending over the winter months. Still, growth in consumer outlays and overall economic activity appeared to pick up in the second quarter. 

"Household spending, which was particularly soft earlier this year, has been supported by solid fundamentals, including ongoing improvement in the job market and relatively high levels of consumer sentiment and wealth," Federal Reserve Chairwoman Janet Yellen said Wednesday. 

Friday's report also showed that household expectations about future inflation firmed this month. In June, consumers said they expected 2.6% inflation in five to 10 years, up from 2.4% the prior three months. The expectation for inflation over the next year was unchanged at 2.6%. 

The Fed aims for 2% annual inflation, as measured by the Commerce Department's personal-consumption expenditures price index. The PCE price index in April was up 1.7% on the year, and prices excluding food and energy rose 1.5% from April 2016. 

"The recent lower readings on inflation have been driven significantly by what appears to be one-off reductions in certain categories of prices, such as wireless telephone services and prescription drugs," Ms. Yellen said this week. 

She said the Fed still expected inflation to move higher "with employment near its maximum sustainable level and the labor market continuing to strengthen." 

Write to Ben Leubsdorf at ben.leubsdorf@wsj.com

(END) Dow Jones Newswires