U.S. consumer confidence has experienced a slight decline this month, reflecting ongoing concerns about high gas prices and elevated inflation, which stand in stark contrast to resilient stock market performances that hover near record levels. According to the Conference Board, the consumer confidence index fell 0.7 points to 93.1 in May, marking the first decrease after three consecutive months of growth. Despite this decline, the index has not dipped as notably as other consumer sentiment measures in the current year, although it remains significantly below pre-pandemic levels typically seen around 130.
Compounding these concerns is a recent report from the University of Michigan, which revealed a record low in consumer sentiment this month. Rising costs for gas and food have exacerbated inflation, outpacing wage growth and diminishing purchasing power for a majority of Americans. Polls indicate a waning support for President Trump’s economic policies among the populace, which poses challenges for the Republican Party as midterm elections approach.
Despite the overall gloom, the economy is still showcasing growth, accompanied by a low unemployment rate. Economists have pointed to a “K-shaped” economic recovery: higher-income households are benefiting from rising stock prices and maintaining spending patterns, while lower-income groups find themselves in a precarious position. The recent consumer confidence survey indicated an uptick in sentiment among households earning $100,000 or more, juxtaposed with a decline for most other income brackets.
Ben Ayers, a senior economist at Nationwide, noted, “The prospect of higher prices and faster inflation continues to loom over confidence readings, with many households taking a more cautious approach to purchases this year.” He did highlight some optimism, suggesting that expectations for growth over the next six months have improved, possibly signaling hopes for an end to geopolitical conflicts affecting economic stability.
However, perceptions of job availability have worsened. The latest findings show only 25.5% of respondents view jobs as “plentiful,” marking the lowest level in three years. Conversely, just 18.6% reported jobs as “hard to get,” the smallest proportion since October. This scenario reflects a “low-hire, low-fire” job market environment, presenting challenges for those seeking employment.
Gas prices have surged dramatically, reaching a nationwide average of $4.49 per gallon, up from $2.98 prior to the onset of conflict at the end of February, and have generally been above $4.50 throughout May. In response to rising costs, the Conference Board’s latest survey indicated substantial behavioral changes among consumers, with two-thirds reporting they are reducing overall spending or delaying larger purchases. Such respondents noted intentions to economize on a variety of items, including clothing, hobbies, and toys.
The inflation rate shot up to 3.8% in April, the highest level in three years and well above the Federal Reserve’s target of 2%. Aside from increasing fuel prices, grocery costs have also escalated, likely driven by heightened shipping expenses. The surge in prices is negatively impacting average inflation-adjusted incomes, with average hourly earnings, when adjusted for inflation, experiencing a year-over-year decline for the first time in three years.
Further evidence of shifting consumer attitudes can be seen in retail sales data, which shows a decline in April when adjusted for inflation, following a robust increase in March. Additionally, the University of Michigan’s consumer sentiment index fell to an unprecedented low of 44.8 in May, marking a third consecutive monthly drop, as many respondents indicated that rising prices are adversely affecting their financial well-being.
