A trifecta of worries leads to a sharp drop in consumer confidence

As measured by the UoM, consumer confidence fell sharply in May with its index down to 67.4 from 77.2 in April and that was also well below the estimate of 76.2 and the weakest since November 2023. Both main components fell notably too. One yr inflation expectations jumped to 3.5% from 3.2% and that is the highest since November 2023. The 5-10 yr guess was up one tenth m/o/m to 3.1%. Expectations for higher gasoline prices was a factor here as they also rose to the most since last November.

That higher inflation expectation figure helps to explain why just 29.6% (mean perspective) think their family income will beat inflation over the coming 5 years. Go back to 2012 the last time we saw a print like that.

As we’re now all watching the labor market, the employment component fell by a large 15 pts m/o/m to 70 and that matches the softest read since August 2011. The income component was down by 6 pts m/o/m to match the lowest since early 2021 and 2014 not including Covid.

Also a problem was the big drops in spending intentions. Those saying it’s a Good Time to Buy a Home fell 21 pts, a plummet based on historical moves. At 26, that is the lowest print on record dating back to 1978. Intentions to buy a vehicle fell 8 pts and by 20 pts for a major household item.

The UoM considers this monthly drop in confidence as “statistically significant” and “This month’s trend in sentiment is characterized by a broad consensus across consumers, with decreases across age, income, and education groups…They expressed worries that inflation, unemployment and interest rates may all be moving in an unfavorable direction in the year ahead.”