Americans just loathe this economy.
A closely watched measurement of US consumer sentiment fell to a fresh, all-time low in May, according to the latest survey from the University of Michigan.
The May consumer sentiment index dropped for the third consecutive month, falling to 44.2 and landing below the previous record low of 49.8 set in April.
The US-Israeli war in Iran and its subsequent oil supply crunch and price shocks have worsened sentiment that already was soured by years of high inflation and an affordability crisis.
“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,” Joanne Hsu, director of the university’s Surveys of Consumers, wrote in a statement.
Consumers’ personal finances sank by 13% in May, she said.
The University of Michigan’s sentiment survey dates back to 1952: Americans are feeling worse now than they did during wars, the 1970s oil crisis, 9/11, the Great Recession, the Covid-19 pandemic and the inflation surge afterward.
Some of the sharpest declines in sentiment came from lower-income consumers and those without college degrees, she said, noting that increases in the cost of fuel and other essentials hit those groups particularly hard.
US gas prices are nearing all-time highs as the Strait of Hormuz – an important passageway for the shipping of oil and other critical goods – has been effectively choked off for nearly three months.
“Earlier this year, consumers may have reserved judgment about how long the Iran conflict would last,” Hsu said. “Three months into the conflict, consumers appear to be worried that supply disruptions are unlikely to be resolved quickly.”
Consumers are also concerned that the high oil and gas prices will spread through the economy and make other goods and services even more expensive, she added.
To that end, consumers’ year-ahead inflation expectations edged higher to 4.8% from 4.7% in April, and the five-year expected inflation rate jumped to 3.9% from 3.5%. The near- and long-term expectations are back at rates hit during the latter part of last year, when tariffs added to inflationary pressures.
Among the respondents with the biggest increases in long-term inflation expectations were those with political affiliations of independent and Republican, Hsu noted.
“For the latter group, long-run inflation expectations are currently more than double their February 2025 reading on a monthly basis,” she said.
Consumers’ expectations about the pace of future price hikes are closely tracked by the Federal Reserve. If people believe that prices will only continue to rise, they might spend more now and demand higher wages, and businesses might raise prices to accommodate higher demand and wages – thus raising inflation.
The dour sentiment reading comes at a time when a large swath of data paints a picture of a resilient US economy while the stock market continues to hit new highs.
Not all Americans feel that.
“The American consumer is treading water here, and the income tax refunds must be gone already or the money spent on the higher prices seen everywhere in the economy,” Christopher Rupkey, chief economist at FwdBonds, wrote in a statement to investors Friday. “The stock market record highs are having no effect whatsoever on cheering consumers up which means most Americans have the money locked up in 401K retirement accounts that cannot be drawn on to make life easier now.”
