Consumer Sentiment Hits Historic Low as Inflation and Energy Costs Squeeze American Households
American consumer sentiment fell to record lows in May amid persistently high inflation, soaring gas prices from the Iran conflict, and tariff concerns. Despite strong stock market performance and corporate earnings, average households report cutting back on spending and canceling vacations as economic anxiety reaches levels not seen since the 1950s.
Record Consumer Pessimism
The University of Michigan Surveys of Consumers, a closely watched bellwether, hit all-time lows in May, and that is just one of several consumer opinion surveys showing Americans have never regained confidence in the U.S. economy since the Covid pandemic struck more than six years ago, with economists noting that consumers remain scarred from years of rapid price increases. In May, consumer sentiment was the worst it has ever been in the entire history of the survey, going back to the 1950s, lower than it was in the 2008 financial crisis and at the peak of pandemic inflation.
Two-Tiered Economy Widens Wealth Gap
There isn't one American economy right now, there are two, with economists calling this a K-shaped economy where the line for wealthier households invested in the stock market is going up, and the line for everyone else is flat or going down, with the top 10% of earners now accounting for about half of all the spending in the entire country.
Energy Prices Driving Consumer Behavior Shifts
In the near-term, sentiment is unlikely to improve as oil prices stay above $100 a barrel in the wake of the Iran war, with the national average price for a gallon of gasoline soaring past $4, and Gasbuddy noting its daily active user base nearly doubled in March as the war ramped up. Whirlpool said it experienced a "recession-level" decline in appliance demand due to cratering consumer confidence from the Middle East conflict, and McDonald's CEO warned that customer spending could take a hit as rising gas prices pressure pocketbooks.
Inflation Remains Top Consumer Concern
Consumers are thinking more about the role of inflation in their lives, with the share of respondents who said they heard negative news about price growth spiking after the pandemic began, and Google searches for the term "inflation" hitting all-time highs earlier this year.