U.S. household confidence deteriorated in early May, with the University of Michigan’s Surveys of Consumers reporting the Consumer Sentiment Index fell to a record low of 48.2, down from a final April mark of 49.8.
The decline exceeded the median forecast from economists polled by Reuters, who had expected the index to dip to 49.5. The survey attributed much of the deterioration to mounting cost pressures facing households.
Energy and sentiment
Joanne Hsu, director of the Surveys of Consumers, pointed to fuel costs as a principal factor weighing on sentiment, saying: "Consumers continue to feel buffeted by cost pressures, led by soaring prices at the pump." She added that geopolitical developments in the Middle East are unlikely to produce a meaningful lift in sentiment until supply disruptions are fully resolved and energy prices retreat, stating: "Middle East developments are unlikely to meaningfully boost sentiment until supply disruptions have been fully resolved and energy prices fall."
Inflation expectations
Alongside the headline sentiment drop, the survey showed a modest downward shift in household inflation expectations. The median expected inflation rate over the next year fell to 4.5% from 4.7% in April. Expectations for inflation over the next five years edged down to 3.4% from 3.5% the prior month.
The combination of a record low reading on the sentiment index and slightly lower inflation expectations underscores how higher energy costs are affecting how consumers view their purchasing power and near-term economic prospects.
Takeaway
The University of Michigan’s early-May survey highlights that consumers are feeling the strain of rising gasoline prices, and while longer-run inflation expectations have ticked down marginally, overall sentiment stands at an unprecedented low.