Consumer confidence in the United States fell sharply in early May as Americans increasingly cite tariffs as a primary driver of economic anxiety, according to preliminary data from the University of Michigan's monthly survey released Friday. The index of consumer sentiment dropped to 50.8, down from 52.2 in April, marking the second-lowest reading on record after June 2022's all-time low of 50.
"Uncertainty over trade policy continues to dominate consumers' thinking about the economy," said Joanne Hsu, director of the Surveys of Consumers. Hsu noted that "tariffs were spontaneously mentioned by nearly three-quarters of consumers, up from almost 60% in April."
Year-ahead inflation expectations jumped to 7.3%-the highest since 1981-up from 6.5% in April. Long-term inflation expectations, which cover the next five to ten years, edged up to 4.6% from 4.4%.
"Pessimism over the inflation outlook soared again," the report stated, adding that expectations had been as low as 3.3% just four months earlier. Economists view rising inflation expectations as a red flag that could deter the Federal Reserve from cutting interest rates in the near term.
"Inflation expectations are closely watched by investors and policymakers," said Federal Reserve Chair Jerome Powell earlier this month. Powell emphasized that the central bank wants to ensure that long-term expectations remain anchored before resuming any policy easing.
The survey, conducted between April 22 and May 13, largely captured consumer views before the announcement of a 90-day pause on most tariffs between the U.S. and China on May 12. That pause led to a sharp rally in equity markets, with both the S&P 500 and Nasdaq Composite recovering their losses since the April 2 tariff announcement.
Joe Brusuelas, chief economist at RSM, commented, "One gets the sense that the American household is under rising stress and this survey captures what is clearly an elevated discontent of the consumer."
