US consumer sentiment unexpectedly fell to the second-lowest level on record and inflation expectations climbed to multi-decade highs amid growing concerns about tariffs.
The preliminary May sentiment index declined to 50.8 from 52.2 a month earlier, according to the University of Michigan. That was lower than all but one estimate in a Bloomberg survey of economists.
Nearly three-fourths of respondents spontaneously mentioned tariffs, indicating trade policy continues to dominate consumers’ views of the economy. The topic crosses partisan lines, including a notable share of Republicans bringing it up.
The survey was conducted between April 22 and May 13, a period that ended just after the US and China agreed to temporarily reduce tariffs on each other while they negotiate a trade deal.
Still, “temporary pauses are unlikely to convince consumers that trade policy has stabilized enough for consumers or businesses to plan effectively for the future,” Joanne Hsu, director of the survey, said in a statement.
Consumers expect prices to rise at an annual rate of 7.3% over the next year, the highest since 1981, data released Friday showed. They saw costs rising at an annual rate of 4.6% over the next five to 10 years, the highest since 1991.
What Bloomberg Economics Says…
“Consumer sentiment in the University of Michigan survey continued to deteriorate in early May, but the drop was much smaller than in previous months as President Donald Trump signaled that upcoming negotiations with China could lead to a reduction in tariffs.”
— Eliza Winger
To read the full note, click here
Despite heightened consumer concern that tariffs will drive up prices, recent reports illustrated limited inflationary pressures. Government data showed consumer prices minus food and energy in April rose less than forecast for the third straight month.
The contrast between sentiment and actual spending is also showing in some parts of the survey. The measure of buying conditions for large items improved slightly, although only a small share of consumers expect to continue to spend as usual if prices increase further.
The survey also showed the expectations index declined nearly a point to 46.5, an almost 45-year low. The current conditions gauge retreated 2.2 points to 57.6.
Consumers’ views of their current personal finances dropped to the lowest since 2009. Financial expectations slid to a fresh record low.
While nearly two-thirds of Republican respondents offered unsolicited comments about tariffs, their overall sentiment remains elevated in comparison to Democrats and political independents.
Written by: Nazmul Ahasan @Bloomberg
The post “US Consumer Sentiment Nears Record Low on Inflation Concerns” first appeared on Bloomberg
