U.S. consumer sentiment has plummeted to a record low in May, according to the University of Michigan's Survey of Consumers. The index fell to 44.8, down from a preliminary estimate of 48.2 earlier in the month and significantly lower than April's reading of 49.8. This marks the third consecutive monthly decline, surpassing previous lows seen during the Great Recession and the COVID-19 pandemic.
The decline is primarily attributed to rising gas prices and broader inflation concerns, exacerbated by supply disruptions in the Strait of Hormuz. 57% of consumers cited high prices as eroding their personal finances, up from 50% in April. Lower-income households and those without college degrees reported the steepest declines in sentiment, as they are more sensitive to increases in essential costs.
Inflation expectations have also risen, with consumers anticipating a 4.8% increase in prices over the next year, up from 4.7% in April. Long-term inflation expectations climbed to 3.9%, from 3.5% in April, signaling growing concerns about sustained price pressures. The Federal Reserve has signaled caution in lowering interest rates amid these inflationary trends.
Political sentiment also reflected broader economic anxieties, with Republicans and independents experiencing the sharpest declines, reaching their lowest levels under the current administration. Democratic sentiment remained relatively stable.
Markets have reacted to these trends, with Treasury yields hitting multi-year highs as investors assess the economic fallout from elevated oil prices and geopolitical tensions.