Americans exhibit a profound dissatisfaction with the current economic conditions. A closely monitored indicator of US consumer sentiment declined to a new historical low in May, as reported by the latest survey. The May consumer sentiment index experienced a decline for the third consecutive month, decreasing to 44.2 and falling below the prior record low of 49.8 established in April. The US-Israeli conflict in Iran, coupled with the ensuing oil supply disruptions and price volatility, has exacerbated an already negative sentiment, which has been further deteriorated by prolonged high inflation and an ongoing affordability crisis. “The cost of living remains a primary issue, with 57% of consumers spontaneously indicating that elevated prices are diminishing their personal finances, an increase from 50% last month,” stated Joanne Hsu. Consumers’ personal finances declined by 13% in May, she stated.
The survey indicates that Americans currently experience a level of pessimism surpassing that of historical crises, including wars, the oil crisis of the 1970s, the events of 9/11, the Great Recession, the Covid-19 pandemic, and the subsequent inflation surge. Some of the most pronounced decreases in sentiment were observed among lower-income consumers and individuals lacking college degrees, she remarked, highlighting that rising costs of fuel and other necessities have particularly impacted these demographics. US petrol prices are approaching historical peaks as the Strait of Hormuz, a vital conduit for the transportation of oil and other essential commodities, has been largely obstructed for almost three months. “Earlier this year, consumers may have reserved judgement about how long the Iran conflict would last,” Hsu stated. “Three months into the conflict, consumers seem to be concerned that supply disruptions are not expected to be resolved swiftly.”
Consumers are expressing apprehension that elevated oil and gas prices will permeate the economy, leading to increased costs for other goods and services, she added. In pursuit of this objective, consumers’ year-ahead inflation expectations increased to 4.8% from 4.7% in April, while the five-year expected inflation rate rose to 3.9% from 3.5%. The near- and long-term expectations have reverted to the rates observed in the latter part of the previous year, a period characterised by tariffs that contributed to inflationary pressures. Among the respondents experiencing the most significant rises in long-term inflation expectations were individuals identifying as independent and Republican, Hsu noted. “For the latter group, long-run inflation expectations are currently more than double their February 2025 reading on a monthly basis,” she stated. Consumers’ expectations regarding the speed of forthcoming price increases are meticulously monitored by the Federal Reserve. If individuals anticipate a persistent increase in prices, they may choose to increase their current spending and seek higher wages.
In response, businesses could elevate prices to meet the augmented demand and wage expectations, consequently contributing to inflationary pressures. The bleak sentiment reading emerges amidst a backdrop where a significant array of data illustrates the robustness of the US economy, even as the market reaches new peaks. Not all Americans share that sentiment. “The American consumer is treading water here, and the income tax refunds must be gone already or the money spent on the higher prices seen everywhere in the economy,” Christopher Rupkey stated in a communication to investors on Friday. “The stock market’s record highs are failing to uplift consumer sentiment, indicating that a significant portion of Americans’ wealth is tied up in 401K retirement accounts, which cannot be accessed to alleviate current financial pressures.”