| Consensus | Consensus Range | Actual | Previous | |
| Index | 49.3 | 48.0 to 53.0 | 48.2 | 49.8 |
| Year-ahead Inflation Expectations | 4.5% | 4.7% |
Highlights
A drop in consumer views of current conditions amid rising inflation worries depresses overall consumer sentiment in May from April, the University of Michigan survey shows.
Consumer sentiment is down to 48.2 in the preliminary May report from 49.8 in April and well below the Econoday consensus looking for 49.3. Current conditions are down 9 percent to 47.8 in May from 52.5 in April. On the slightly positive side, the consumer expectations index is up 0.8 percent to 48.5 from 48.1 in April.
The University of Michigan says consumers continue to"feel buffeted by cost pressures" as one-third of respondents spontaneously bring up gas prices and about 30 percent mention the effect of tariffs. These factors lead to a dimmer view of personal finances as well as buying conditions for major purchases. Real income expectations continue a decline that began in March. The U. of Michigan says positive Middle East developments are unlikely to boost sentiment meaningfully until supply disruptions have been fully resolved and energy prices fall.
On the inflation expectations front, the latest month shows some moderation with 1-year inflation expectations down to 4.5 percent from 4.7 percent in April. Still, that is well above the 3.4 percent figure of February, before the Iran conflict began. Five-year inflation expectations are down to 3.4 percent from 3.5 percent last month and versus 3.3 percent in February.
These inflation expectations figures are not the kind to reassure Federal Reserve officials who fret that rising prices are unmooring consumer inflation expectations. It's one more report that will now anchor consensus market expectations for no rate cut in 2026.
Market Consensus Before Announcement
Sentiment expected to slip to 49.3 in the first report for May from an already gloomy 49.8 in the April final as consumers are unhappy about rising prices for gas and worried about the economic outlook.
Definition
The University of Michigan's Consumer Survey Center questions households each month on their assessment of current conditions and expectations of future conditions. Preliminary estimates for a month are released at mid-month and are based on about 420 respondents. Final estimates are released near the end of the month and are based on about 600 respondents.
Description
The pattern in consumer attitudes and spending is often the foremost influence on stock and bond markets. For stocks, strong economic growth translates to healthy corporate profits and higher stock prices. For bonds, the focus is whether economic growth goes overboard and leads to inflation. Ideally, the economy walks that fine line between strong growth and excessive (inflationary) growth.
This balance was achieved through much of the nineties and, in large part because of this, investors in the stock and bond markets enjoyed huge gains. It was during the late nineties that the consumer sentiment index hit its historic peak, reaching levels that were never matched during the subsequent 2001 to 2007 expansion nor during the long expansion following the Great Recession.
Consumer spending accounts for more than two-thirds of the economy, so the markets are always dying to know what consumers are up to and how they might behave in the near future. The more confident consumers are about the economy and their own personal finances, the more likely they are to spend. With this in mind, it's easy to see how this index of consumer attitudes gives insight to the direction of the economy. Just note that changes in consumer confidence and retail sales don't move in tandem month by month.
