Consumer sentiment has further deteriorated this month, hitting a new record low as the ongoing conflict in Iran persists, sustaining high energy prices. The University of Michigan’s latest consumer survey, released on Friday, indicated that sentiment declined early this month to a preliminary reading of 48.2, marking the lowest level recorded since 1952. Sentiment had previously fallen to its lowest level just last month, below any metrics observed during the Great Recession, the pandemic, and the subsequent inflation surge. “Approximately one-third of consumers spontaneously referenced gasoline prices, while around 30% brought up tariffs,” stated Joanne Hsu. “When considered collectively, consumers persist in experiencing significant cost pressures, primarily driven by escalating fuel prices.” She added “Developments in the Middle East are not expected to significantly enhance sentiment until supply disruptions are completely addressed and energy prices decline.”
The perception of the economy is significantly affected by gas prices, with the national average price for a gallon of gasoline remaining above $4 for several weeks. Global energy prices have remained elevated, influenced by the ongoing closure of the Strait of Hormuz, a crucial passageway through which 20% of the world’s oil, along with various other commodities, is transported. “In sharp contrast to investors, consumers feel miserable right now,” Oren Klachkin noted in an analyst communication Friday. “A sustained decline in gasoline prices appears necessary for any potential recovery in sentiment.” Nevertheless, the prevailing record-low sentiment is unlikely to result in a contraction in consumer spending, which constitutes approximately two-thirds of the US economy. Bouts of souring sentiment in recent years did not lead to diminished spending, as evidenced in 2022, when inflation hit 40-year highs; and in the previous year, when President Donald Trump announced extensive tariffs. A primary factor explaining why Americans have not reduced their spending, even amid negative sentiments regarding the economy, is the robustness of the US labor market. Although hiring has slowed relative to the vigorous post-pandemic period, layoffs have not increased significantly, thereby maintaining stability in the unemployment rate.
New employment data released on Friday indicated that the unemployment rate remained unchanged at 4.3% in April, with employers contributing a robust 115,000 jobs during the month, surpassing expectations. As Americans maintain their employment, which enables their consumption, they are likely adjusting their purchasing habits. This is particularly evident as rising gas prices consume a larger portion of household budgets, coupled with the impact of tariffs imposed during the Trump administration, which have increased the cost of certain goods. The Michigan survey’s measure of “Current Economic Conditions” fell by 9% in early May, reaching a reading of 47.8. This decline is attributed to a significant increase in worries regarding elevated prices affecting personal finances and the conditions for major purchases, as stated in a release.
Some companies are already feeling the impact: Whirlpool, a leading producer of major appliances, fell short of analysts’ expectations in its first-quarter earnings reported earlier this week. The company experienced a decline in its stock price, dropping as much as 20% following the report. In an interview, Roxanne Warner indicated that demand for appliances has “reached recession-level lows,” attributing this decline primarily to low consumer sentiment. “The industry contracted approximately 7.4%,” she stated. “These are levels that were last observed during the great financial crisis.”