The University of Michigan's preliminary consumer sentiment index rose to 54.4 in July from 49.5 in June, above expectations for a smaller gain to 51.0 in a survey compiled by Bloomberg as of 7:30 am ET.
The current conditions index jumped to 54.9 in July from 47.7 in June, while the expectations reading increased to 54.0 from 50.7.
Michigan said that despite the highest index reading since February, consumers remain dissatisfied compared with a year earlier due to the high level of price, adding that it would be difficult to maintain the recent improvement in sentiment if gasoline prices rebound.
"Interviews for this release spanned June 23 to July 13, with more than 70% completed before the resumption of US strikes against Iran on July 7 and the subsequent increase in gas prices," Michigan said.
Respondents saw one-year inflation expectations at 4.2%, down from 4.6% in June, while five-year inflation expectations remained at 3.3%.
The twice-monthly Michigan Sentiment index measures consumer sentiment early in the current month (the preliminary estimate) and is then revised later in the month (the final estimate). The headline index is a combination of the current assessment and expectations for the near future.
An increase in the reading suggests consumers are more confident, a positive for stocks if that confidence translates into spending. Increased demand is usually inflationary, a negative for bonds.