UMich Sentiment and Inflation Expectations Deteriorate in May

Rebound from Preliminary Data

The final UMich sentiment survey data for today was anticipated to validate the disappointing preliminary data. However, it appears that sentiment improved within the month, likely due to lower gas prices, as inflation expectations declined. Inflation expectations did see a month-on-month increase, rising from 2.9% to 3.2% for the coming 12 months. However, this was significantly lower than the preliminary print of 3.5%.

Headline Sentiment Signals

A similar pattern was observed in the headline sentiment signals, which decreased month-on-month but showed a significant improvement from the steep drop seen in the preliminary print. "While consumers recognize that realized inflation has eased substantially since 2022, a considerable share of consumers still express the burden that high prices exert on their lives," stated Joanne Hsu, the director of the survey.

Consumer Sentiment Index

Despite an improvement from the preliminary reading, the university's final May consumer sentiment index still recorded a significant 8.1-point decrease from April, standing at a six-month low of 69.1. The current conditions gauge dropped to 69.6 in May from 79 in the previous months, while a measure of expectations fell to 68.8 from 76.

Rising Concerns

High prices and borrowing costs, which are raising concerns about the cost of living, have led to increased anxiety about the labor market among survey respondents. They expect the unemployment rate to increase and income growth to slow down. This poses a challenge for President Joe Biden in his bid for re-election. Consumers also see a reduced likelihood of the Federal Reserve lowering interest rates in the coming year. Only one in four now sees a rate cut, compared to 37% in January.

Consumer Perception

Buying conditions for durable goods fell to a one-year low, while consumers' perception of their current financial situation was the worst in five months. Approximately four in ten respondents blamed high prices for the decline in living standards. These worsening expectations suggest that several factors pose a downside risk for consumer spending.

Closing Thoughts

This report paints a somewhat gloomy picture of consumer sentiment and inflation expectations in May. It raises questions about the future of consumer spending and the overall health of the economy. What are your thoughts on this? Do you believe these trends will continue, or will we see a turnaround in the coming months? Please share this article with your friends and join the conversation. Don't forget to sign up for the Daily Briefing, which is delivered every day at 6pm.