Consumer sentiment falls to record low as gas prices, inflation worries rise
Consumer sentiment fell for the third straight month in May as supply disruptions in the Strait of Hormuz continued to lift gasoline prices.
Sentiment is now just below the previous historical low seen in June 2022, according to the University of Michigan Surveys of Consumers, whose Index of Consumer Sentiment fell 10% in May to 44.8 in May.
In addition, consumers anticipate that business conditions will worsen over both short and long time horizons. The Current Conditions Index fell 12.8% to 45.8, and is down 22% year over year. The Index of Consumer Expectations declined 8.3% to 44.1. Consumers cited a variety of pressures on businesses, including recent factors like rising costs and the Iran conflict, as well as ongoing factors like tariffs and uncertainty,
The cost of living continues to be a first-order concern, with 57% of consumers spontaneously mentioning that high prices were eroding their personal finances, up from 50% last month. Independents and Republicans saw decreases in sentiment, with both groups reaching their lowest readings of the current presidential administration. Sentiment of Democrats was little changed from last month.
"Earlier this year consumers may have reserved judgment about how long the Iran conflict would last," said University of Michigan economist Joanne Hsu, director of the surveys. "Three months into the conflict, consumers appear to be worried that supply disruptions are unlikely to be resolved quickly. Moreover, consumers are clearly concerned that increases in gas prices will spread to other prices in the economy and that consequences may persist into the long run."
During interviews this month, nearly 40% of consumers offered unsolicited comments about gas prices, up from 33% last month, reflecting their importance in how consumers view the economy, she noted.
Current personal finances plunged about 13% in May. Lower-income consumers and those without college degrees posted particularly strong declines in personal finances as well as overall sentiment this month. These groups are more sensitive to increases in the cost of gas, which has risen sharply by more than 50% since the start of the Iran conflict, Hsu said.
The Surveys of Consumers is a rotating panel survey at the University of Michigan Institute for Social Research. It is based on a nationally representative sample that gives each household in the coterminous U.S. an equal probability of being selected. Interviews are conducted throughout the month by web. Interviews for this release were completed between April 21 and May 18.
