Consumer sentiment fell to 50.8 in the early May reading. That represents a loss of ground from the 52.2 index of a month ago. This new number now stands as the second lowest reading in history, behind June 2022. This has become even more of a concern as consumers report worrying about inflation and the overall economy. It’s no wonder that a great majority of Americans are worried about future increases.
Joanne Hsu, the director of the Surveys of Consumers, discussed the recent decline in consumer sentiment. She highlighted the powerful role that trade policy plays in shaping consumer perceptions. “Tariffs were spontaneously mentioned by nearly three-quarters of consumers, up from almost 60% in April. Uncertainty over trade policy continues to dominate consumers’ thinking about the economy,” Hsu stated.
Sentiment fell to 35-year lows. Meanwhile, one-year inflation expectations are up sharply, clocking in at 7.3%, jumping from 6.5% in April. Long-term inflation expectations inched up, too, coming in at 4.6%, up from 4.4% the month before. Inflation expectations are starting to tick up. This is the case in spite of the fact that recent consumer and producer price index data for April both fell below where analysts expected them to be.
That survey was largely completed prior to the announcement of a 90-day truce on most tariffs between the U.S. and China. This timing very much shaped what came out on top. The average tariff rate on goods coming into the United States is still well over three times higher than before President Donald Trump took office in January. That increase still reverberates through trade dynamics today.
A final consumer sentiment index for the month of May is due out May 30. This first release will provide a unique window into changing consumer attitudes and expectations as the month progresses. Analysts are closely anticipating this new data to measure any impacts after the recent positivity on trade relations and inflation stabilization.