The University of Michigan's preliminary May Consumer Sentiment Index fell to a record low of 48.2, driven by surging gasoline prices and broader inflation concerns. The decline marks the lowest level since June 2022, when inflation peaked above 9%. The survey, released on May 8, indicates that one-third of respondents cited gas prices as their top concern, while another third mentioned tariffs. The national average gas price has risen to $4.54 per gallon, significantly higher than the $3.15 paid a year ago, with California averaging $6.10 per gallon.
Part 1: Immediate Action & Core Facts
The survey found that consumer sentiment dropped 3.2% from April's prior record low, with the current conditions index falling 9% due to concerns about personal finances and major purchases. Inflation expectations for the next year decreased slightly to 4.5%, down from 4.7% in April, while long-term inflation expectations inched down to 3.4%. Despite strong job growth—with 115,000 nonfarm payrolls added in April—consumer pessimism persists. The survey also noted a sharp decline in sentiment among Republican and independent voters, while Democratic sentiment improved slightly, potentially reflecting midterm election expectations.
Part 2: Deeper Dive & Context
Economic Contrasts
The survey highlights a disconnect between economic indicators and consumer perceptions. While unemployment remains near historic lows and job creation is robust, rising energy prices and inflation fears dominate consumer attitudes. Joanne Hsu, director of the survey, noted that Middle East developments are unlikely to boost sentiment until energy prices stabilize. The survey's expectations index rose modestly to 48.5, a 0.8% increase from April, but the current conditions index remains weak.
Political Divide in Sentiment
The survey revealed partisan differences in economic outlook. Republican and independent sentiment declined sharply, while Democratic sentiment improved from extreme lows. This shift may reflect political expectations ahead of the midterm elections. The survey also noted that tariffs and gas prices were the most frequently mentioned concerns, both tied to policies associated with President Donald Trump.
Market Reaction
Stock indexes held positive after the survey's release, suggesting that investors remain focused on job growth and other economic indicators despite consumer pessimism. The survey's findings underscore the ongoing impact of inflation and energy costs on public perception, even as broader economic metrics show strength.