US consumer sentiment fell to its lowest level in nearly three years in May as consumers grew increasingly concerned about rising prices and economic uncertainty. The University of Michigan’s consumer confidence index fell to 50.8 – its lowest level since June 2022 – reflecting growing concerns about the nation’s economic outlook.
Contents
- 1 US Consumer Sentiment Index Shows Widespread Economic Anxiety
- 2 Inflation Expectations Surge to Four-Decade High
- 3 Retail Giants Warn of Price Increases as US Consumer Sentiment Worsens
- 4 Trade Tensions Impact US Consumer Sentiment Despite Recent De-escalation
- 5 Housing Market Feels the Pressure as US Consumer Sentiment Declines
- 6 Federal Reserve Faces Difficult Balancing Act
- 7 About H2T Finance
US Consumer Sentiment Index Shows Widespread Economic Anxiety
The latest US consumer sentiment data reveals a troubling trend across political affiliations. For the first time since Mr. Trump’s November election victory, optimism among Republicans fell 7%, suggesting that even his core voters are worried about his recent trade policies and their economic impact.
“Tariffs were spontaneously mentioned by nearly three-quarters of consumers, up from almost 60% in April; uncertainty over trade policy continues to dominate consumers’ thinking about the economy,” explained Joanne Hsu, director of the University of Michigan’s Surveys of Consumers.
Inflation Expectations Surge to Four-Decade High
Perhaps most alarming in the US consumer sentiment report is the dramatic spike in inflation expectations. Consumers now expect prices to rise 7.3% next year – the highest since November 1981. Longer-term inflation expectations also rose to 4.6%, reaching a level not seen since March 1991.
This deterioration in US consumer sentiment follows the economy’s first quarterly contraction in three years. The first quarter of 2025 saw negative growth, amid a surge in imports as businesses rushed to stock up ahead of tariffs.
Retail Giants Warn of Price Increases as US Consumer Sentiment Worsens
Walmart has already announced plans to raise prices at the end of the month due to increased costs from import duties, a move that could further erode US consumer sentiment and purchasing power. Auto manufacturers have similarly warned of upcoming price hikes.
“The consumer is plainly worried and reading between the lines it is not just price increases that are worrying, it is the fact that many goods may be impossible to find as the reduction in port activity means shortages could develop within months,” warned Christopher Rupkey, chief economist at FWDBONDS. “The outlook continues to darken and one wonders how long this can continue before the economy actually slips over the edge into recession.”
Trade Tensions Impact US Consumer Sentiment Despite Recent De-escalation
Although the US and China recently reached an agreement to reduce tariffs on Chinese imports from 145% to 30% for 90 days, this has done little to improve overall US consumer sentiment. The University of Michigan noted only “minor improvement” following the announcement, similar to the muted reaction when tariff implementations were delayed in April.
Housing Market Feels the Pressure as US Consumer Sentiment Declines
The housing sector is also showing signs of strain amid weakening US consumer sentiment. Housing starts fell 2.1% to a nine-month low, while new building permits fell 5.1%. A survey by the National Association of Home Builders found that 78% of builders have had “difficulties pricing their homes recently due to uncertainty around material prices.”
“Builders are hitting the brakes this year in response to high uncertainty for costs and future demand,” said Ben Ayers, senior economist at Nationwide. “We expect starts to fade further over the summer as conditions remain challenging for builder profitability.”
Federal Reserve Faces Difficult Balancing Act
The sharp deterioration in US consumer sentiment and expectations of rising inflation are posing a major challenge for the Federal Reserve as it weighs its next monetary policy move. Earlier this month, the Fed left its benchmark interest rate unchanged at 4.25%-4.50%.
“The idea that the Federal Reserve is going to hike rates anytime soon should be summarily dismissed,” said Joseph Brusuelas, chief economist at RMS US, noting the complex dynamic between tariffs and inflation expectations.
Fed Chair Jerome Powell acknowledged these difficulties, warning that “we may be entering a period of more frequent, and potentially more persistent, supply shocks—a difficult challenge for the economy and for central banks.”
As US consumer sentiment continues to deteriorate, economists are closely monitoring retail sales data and other indicators for signs of a broader economic slowdown that could potentially tip the economy into recession later this year.
