Signs of Easing Inflation Accompanied by Slower Growth in Construction Jobs

Inflation expectations among American consumers have slightly eased, offering a positive sign for the Federal Reserve as it attempts to manage persistent price pressures. The University of Michigan's preliminary consumer sentiment index showed that one-year inflation expectations dropped to 3.1% in June, down from 3.3% the previous month. This shift marks the lowest level since March and aligns more closely with the Fed’s long-term inflation target of 2%. Meanwhile, five-year inflation expectations also edged lower to 3.0%, down from 3.1%.

Despite the moderation in inflation expectations, broader consumer sentiment fell to 65.6 in June from May’s reading of 69.1. The decline reflects lingering concerns about personal finances, likely due to continued high prices for essential goods and services, even as inflation cools overall. The sentiment index, while above pandemic-era lows, still suggests that consumers remain cautious in their economic outlook.

Labor market indicators point to a cooling trend as well, particularly in the construction sector. Job growth in construction has decelerated, highlighting the impact of higher borrowing costs on the housing and commercial building industries. Although hiring continues, the overall pace has slowed compared to previous months. This trend may reflect a broader softening in labor demand, which the Fed views as necessary to bring inflation under control.

These developments occur against a backdrop of ongoing policy deliberations at the Federal Reserve. The decline in inflation expectations and the cooling labor market provide support for a patient approach to monetary policy. While the Fed has not ruled out further interest rate hikes, recent data suggest that its existing measures may be achieving their intended effect without triggering a sharp economic contraction.

In sum, the slight dip in both short- and long-term inflation expectations, coupled with a slowing pace of job growth—especially in construction—offers some reassurance that inflationary pressures are receding. This gives the central bank more flexibility to manage its next policy moves with a focus on sustaining economic stability.