U.S. consumer sentiment hits new lows amid inflation and war

American consumers have been pessimistic for so long that economists now wonder when, or even if, households will feel better financially.

University of Michigan Consumer ResearchIt hit all-time lows in May, a closely watched bellwether, according to a preliminary reading released last week. This is just one of several consumer opinion surveys showing Americans have never regained confidence in the US economy since the Covid pandemic emerged more than six years ago.

Economists told CNBC that consumers continue to be upset by years of rapid price increases. inflation rate is cooling. On top of that, Americans are battered by a series of economic disruptions that have defined the current decade, from Covid to wars to President Donald Trump’s tariffs.

“This is a series of shocks,” senior economist Yelena Shulyatyeva said. Conference BoardConducting another popular measure of economic confidence. “Consumers cannot rest easy.”

Price level pain

Economists and monetary policy makers typically track the inflation rate over a 12-month period. By that measure, price growth is closer to the Fed’s 2% target than the four-decade highs seen during the pandemic.

But shoppers are focused on the cumulative change in prices over the past few years. From this perspective, Cleveland Fed President Beth Hammack told CNBC that we’ve had nearly a decade of inflation in half the time.

“People are starting to hear that inflation is coming down, but the cereal box is still really expensive,” said Kyla Scanlon, an economic commentator credited with coining the term “vibe.”

“This feels really bad,” Scanlon said.

According to data analysis, much of the decline in consumer sentiment between 2019 and 2026 was driven by higher prices. PNC Financial Services. Sticker shock also explains why the economic conditions model has stopped moving with consumer sentiment in recent years, according to the bank’s analysis.

Consumers are thinking more about the role of inflation in their lives. Share of respondents to Michigan’s survey who said they had heard negative news about price increases or blamed their worsening outlook for prices after the start of the pandemic in 2020.

Google Searches for the term “inflation” reached an all-time high at the beginning of this year.

“Nobody cared about inflation until it became a problem,” said Brian LeBlanc, senior economist at PNC. “Now, it’s something everyone in this country is thinking about.”

One shock after another

There’s another reason why economists believe confidence isn’t recovering: Consumers don’t have enough time to recover from one economic jolt before another strikes.

“I can’t think of a time when we’ve had shocks like this,” said Eric Winograd, a graduate of the Federal Reserve Bank of New York who is now chief economist at asset manager AllianceBernstein. “I’m not saying these are the largest in terms of size, but it’s extremely unusual to have that many consecutive events.”

Georgetown University finance professor Francesco D’Acunto said U.S. consumers would need to see “positive” and “stable” economic conditions for several quarters for sentiment to pick up. Instead, as geopolitical conflicts erupt and Trump continues to push for higher tariffs on trading partners, consumers are getting “the exact opposite,” D’Acunto said.

The decline in sentiment reflects trends reported happiness And trust in public institutions seen in this decade.

“Consumer sentiment isn’t the only thing that’s really broken in the pandemic,” said Joanne Hsu, director of the Michigan survey.

open wallets

But despite what they told pollsters, consumers generally continued to open their wallets hesitantly. Uber And Walt Disney Strong customer spending was reported last week, defying fears that customers would tighten their wallets in response to price increases.

“The traditional correlation between sentiment and spending has largely broken down,” said Gregory Daco, chief economist at consultancy EY-Parthenon. “We have to depart a bit from the traditional analysis of these indicators due to the unique circumstances we are experiencing right now.”

As a result, AllianceBernstein’s Winograd said investors who want to check the pulse of consumers should monitor the direction of confidence indices rather than pre-pandemic comparisons. He said consumer sentiment is still a low-level economic data point for traders making investment decisions.

S&P 500 It hit an all-time high last week, the same day Michigan reported record-low consumer confidence data. While the benchmark stock index has more than doubled to roughly 130 percent since the beginning of 2020, Michigan’s sentiment gauge has halved, dropping 52 percent.

“If this is the new normal, then this is the new normal,” Winograd said. “The question is: Are things getting better or worse?”

A ‘resilient’ consumer

Some economists told CNBC that sentiment is not expected to improve in the near term as oil prices remain above $100 per barrel in the wake of the Iran war.

national average price It rose to over $4 for a gallon of gasoline; 2022 AAA survey It found that the majority of Americans are implementing lifestyle changes. Price tracking platform Gasbuddy said its daily active user base nearly doubled in March as the battle escalated.

Jacuzzi Last week, it said there had been a “recession-level” decline in device demand as consumer confidence collapsed due to conflict in the Middle East. McDonald’s CEO Chris Kempczinski warned analysts that customer spending could take a hit as rising gas prices put pressure on pocketbooks.

Winograd said what happens next in the job market could also determine consumers’ emotions and behavior. While federal government data released last week showed the U.S. job market grew more than economists expected in April, it still points to a “low hiring, low fever” environment.

But Winograd said that despite these uncertainties and pessimistic views, American consumers, responsible for roughly two-thirds of all economic activity, are unlikely to budge.

“He’s a stupid man betting against the US consumer,” the economist said. “The base case should be that the consumer continues to connect.”