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Americans are feeling worse about the US economy amid inflation concerns
US consumers are increasingly concerned about the trajectory of the US economy amid sticky inflation and the perspective of high interest rates for longer than initially expected.
The most recently University of Michigan Consumer Sentiment Survey released on Friday revealed a 13% decline in overall sentiment during the month of May. The index reading for the month came in at 67.4, its lowest level in six months, and well below economists’ expectations of a reading of 76.2.
Inflation expectations for next year reached 3.5% in Friday’s report, up from 3.2% the previous month. Long-term inflation expectations rose to 3.1%, up from 3% the previous month.
“While consumers have reserved judgment in recent months, they are now noticing negative developments across a number of dimensions,” consumer research director Joanne Hsu said in a statement. “They expressed concerns that inflation, unemployment and interest rates may be moving in an unfavorable direction next year.”
The drop in sentiment comes after several months of data showing that the downward path of inflation has not been as smooth as many economists had hoped. During the first three months of the year, the core Personal Consumption Expenditures (PCE) index, which excludes the cost of food and energy and is closely monitored by the Federal Reserve, rose at an annualized pace of 4.4%. This was significantly above the Fed’s 2% target, reversing a trend of significantly lower inflation through the end of 2023.
“In recent months, inflation has shown a lack of progress toward our 2% objective, and we remain very attentive to inflation risks,” Federal Reserve Chairman Jerome Powell said on May 1.
And although Powell said it is “unlikely” that the Fed’s next move will be an interest rate hike, the tough inflation data appears to have put the Fed on a path to delaying rate cuts for longer than markets expected. at the beginning of the year.
Meanwhile, several economic data releases have been tepid, such as the latest weaker-than-expected employment report and data showing a contraction of manufacturing activity in April. On Thursday, weekly unemployment benefit claims rose unexpectedly, reaching their highest level since August 2023.
Friday’s release from the University of Michigan follows a recent consumer confidence reading from the Conference Board that showed confidence in April reached its lowest level since July 2022.
Powell spoke extensively about how consumer sentiment regarding inflation is something the central bank watches and will play a role in returning inflation to the 2% target.
The story continues
“To begin easing policy restrictions, we would like to be sure that inflation is falling sustainably to 2%,” Powell said on May 1. We would also be looking at inflation expectations, we would be looking at the whole story, but clearly, incoming inflation data would be at the heart of that decision.”
Crucial readings on inflation and consumer spending will come next week with retail sales and the Consumer Price Index for April expected on Wednesday.
United States fans appear dejected after the FIFA World Cup Qatar 2022 round of 16 match between the Netherlands and the USA at the Khalifa International Stadium on December 3, 2022 in Doha, Qatar. (Mohammad Karamali/DeFodi Images via Getty Images) (DeFodi Images via Getty Images)
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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