US Consumer Confidence Drops to Historical Low in May, Inflation Expectations Rise to Seven-Month High

The final value of the University of Michigan's Consumer Sentiment Index in the United States for May dropped to 44.8, lower than the 49.8 in April, and lower than the initial value and economists' expected 48.2. Bloomberg reported that this is an all-time low for the index, with the survey covering the period from April 21 to May 18.

Inflation expectations deteriorated simultaneously, with consumers expecting a 3.9% annualized increase in prices over the next 5 to 10 years, higher than the 3.5% in April, the highest in seven months. The final one-year inflation expectation rose to 4.8%, higher than the expected 4.6% and the initial 4.5%.

The breakdown of indicators shows that consumer assessments of both the present and the future are weakening. The final consumer current conditions index for May fell to 45.8, lower than the expected 48 and the initial 47.8; the consumer expectations index final value fell to 44.1, lower than the expected 48.5 and the previous value, both at the lowest on record.

Joanne Hsu, director of the University of Michigan's survey, stated in a declaration that the cost of living remains the most direct source of pressure for consumers.

“The cost of living continues to be the top concern, with 57% of consumers voluntarily mentioning that high prices are eroding their personal financial situation, higher than last month's 50%.”

Gasoline prices have exacerbated this pressure. According to data from the American Automobile Association, gasoline prices have been above $4.50 per gallon since the beginning of this month; the price of regular gasoline has risen by over 50% since the beginning of the Iran war at the end of February. Hsu said that consumers are worried that inflationary pressures won't just stay at fuel prices.

“Crucially, consumers seem to be concerned that inflation will rise and spread beyond fuel prices in the long term.”

The report indicated that the rise in long-term inflation expectations mainly comes from a significant increase in Republicans and politically independent individuals. Confidence among consumers in these two groups also fell to the lowest since Trump's second presidential term.

A relatively positive point in the report is that labor market expectations remain stable. Previously, supported by the employment market and driven by the wealth effect of rising stock markets, U.S. consumer spending has shown resilience.