Low-income households face the steepest squeeze as real disposable incomes take a hit
Consumer confidence edged higher in June as pump prices pulled back from recent highs, but economists warn a spending slowdown is coming — and low-income households will bear the brunt.
The University of Michigan's Consumer Sentiment Index rose to 48.9 in early June 2026, up from May's all-time low of 44.8 and above market expectations of 46. The modest recovery reflected some relief from early-month easing in gasoline prices, with improvements seen across age, education, and political groups. TRADING ECONOMICS
Lower-income consumers exhibited a particularly strong sentiment increase, consistent with the fact that gasoline comprises a larger share of their budgets. The gains, however, do little to reverse a broader deterioration in consumer confidence. Sentiment is currently 13% below January 2026 and 19% below a year ago, as consumers remain focused on kitchen table issues and worry that higher inflation could remain stubborn going forward, particularly in the short run. University of MichiganGoldrush Cam
Prices at the pump pull back — but remain elevated
The national average for a gallon of regular gas has been falling for three straight weeks, dropping from $4.56 on May 21 to $4.12 as of June 11, according to AAA, as crude oil prices remained below $100 per barrel. Despite the recent relief, prices remain sharply higher than they were before the conflict began. Since the start of the US/Israel-Iran conflict on Feb. 28, 2026 and the subsequent closure of the Strait of Hormuz, gas prices peaked at $4.55 on May 21, 2026 — roughly 54% higher than the $2.96 recorded on Feb. 26, 2026, according to data compiled by Finder. AAA Fuel PricesFinder
That sustained pressure is showing up in inflation expectations. Year-ahead inflation expectations edged down from 4.8% in May to 4.6% in June — still substantially above the 3.4% reading seen in February 2026 prior to the start of the Iran conflict, and above all 2024 readings. Long-run inflation expectations fell back from 3.9% to 3.4%, remaining notably higher than the 2.8% to 3.2% range seen in 2024, according to the University of Michigan's Surveys of Consumers. Goldrush Cam
Oxford Economics economist Grace Zwemmer said the easing in long-run expectations is significant for monetary policy. Stability in inflation expectations could allow the Federal Reserve to treat the oil price shock as a one-time event rather than a signal of entrenched inflationary pressures, Zwemmer noted in an Oxford Economics data insight published this month.
Spending resilience under pressure
Despite the sentiment rebound, Oxford Economics is forecasting a meaningful deceleration in consumer spending over the course of the year. The firm projects consumption growth will slow to 1.8% in 2026, down from 2.6% in 2025, as the drag from higher energy costs on real disposable incomes becomes more pronounced once the boost from elevated tax refunds fades.
Consumers continue to rate the current environment as a poor time to purchase durable goods — a trend that has direct implications for the US housing and mortgage market, where buyer sentiment and purchasing decisions are closely tied to broader economic confidence. The disconnect between weak consumer sentiment and resilient spending that has characterized much of the post-pandemic period may be narrowing.
Oxford Economics also flagged growing consumer bifurcation as a risk in 2026 — driven by the possibility of a jobless expansion, the increasing role of financial wealth in driving household spending, and the unequal distributional impact of fiscal policy. For mortgage professionals tracking purchase activity among first-time and lower-income buyers, that divergence carries implications for loan origination volumes and demand across market segments.
Fed watching
Survey interviews were conducted between May 19 and June 8, before President Trump claimed the US and Iran were "very close" to a deal — a development that has since accelerated. As of June 15, US gasoline prices had dropped below $3 per gallon, extending losses after reports emerged that the US and Iran had reached a peace deal that could gradually normalize Middle East energy exports. A full revision to the University of Michigan's June consumer sentiment index is due June 26. AxiosTRADING ECONOMICS
If pump prices continue their descent, the next sentiment reading could show further improvement. But economists caution that the structural headwinds facing lower-income consumers — elevated energy costs, a tight housing market, and an uneven labor market — are unlikely to resolve quickly regardless of where gas prices settle.
