Topline
Consumer sentiment fell to its lowest level of 2024 this month, according to a University of Michigan poll, as Americans react sourly to inflation that won’t go away during the election year, though the economy remains far from the recession braced for by many.
President Joe Biden, front, speaks with Federal Reserve Chairman Jerome Powell in 2021.
Key Facts
The Michigan survey’s preliminary May index reading came in at 67.4, coming in far weaker than mean economist forecasts of 76 and registering its weakest level since November.
The sharper-than-expected decline came as Americans expressed “worries that inflation, unemployment and interest rates may all be moving in an unfavorable direction in the year ahead,” Joanne Hsu, the director of the phone poll, said in a statement.
Americans’ average inflation expectations for 12 months ahead shot up from 3.2% to 3.5% and advanced for the long run from 3% to 3.1%, far above the typical 2% inflation target for the U.S. economy, indicating consumers are uneasy about the pace of price increases even as inflation subsides from its harshest level in four decades.
A spate of unwelcome economic data contributed to the shift, as last month’s inflation report came in worse than expected for the fifth straight month, job growth came in far weaker than forecasted, and the Federal Reserve opted to not slash rates at its May 1 meeting, a conclave that markets viewed as recently as January as a slam dunk to cut rates.
Contra
May’s sentiment is about 14% higher than it was last year and is higher than it was for the entirety of January 2022 to July 2023, the time frame in which the Fed hiked rates from near zero to over 5%, the most expensive borrowing level since 2001. Essentially, Americans are recalibrating away from the low rates, high-growth mindset that was the prevailing view for much of the last six months, but are still more confident than they were earlier in this tightening cycle that the U.S. will avoid an extended downturn typically associated with sticky inflation and higher interest rates.
Key Background
Consumer sentiment is now about 18% lower than it was when President Joe Biden took office in 2021 and 32% lower than it was at the 2017 handoff from the Obama Administration to the Trump Administration. Americans’ confidence in Biden’s handling of the economy is the weakest faith in a president since 2008, according to a recent Gallup poll, with voters’ gripes regarding the economy among the chief issues facing Biden in his upcoming rematch with Trump. Inflation has plagued the global economy, with much of the lingering price increases traceable back to COVID-19-related supply chain issues and from increases in commodity prices from overseas military conflicts.
Surprising Fact
Consumer sentiment may be slumping, but investor sentiment is not. The stock market stormed to a new record high earlier this year, defying the historical trend of extended losses during high interest rate regimes. The benchmark S&P 500 stock index is about 35% higher than it was when Biden took office.
Get Forbes Breaking News Text Alerts: We’re launching text message alerts so you'll always know the biggest stories shaping the day’s headlines. Text “Alerts” to (201) 335-0739 or sign up here.
