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U.S. Consumer Sentiment Falls in Early May; Inflation Expectations Surge — University of Michigan

By Xavier Fontdegloria

 

Consumers sentiment in the U.S. weakened in early May as Americans' view on both current economic conditions and short-term expectations worsened in the wake of higher expected inflation.

The preliminary estimate of the index of consumer sentiment released Friday by the University of Michigan stood at 82.8 in May, down from 88.3 in April. The reading missed expectations from economists polled by The Wall Street Journal, who forecast the indicator would increase to 90.1.

Consumer confidence tumbled due to the highest expected year-ahead inflation rate as well as the highest long-term inflation rate in the past decade, said Richard Curtin, the survey's chief economist.

May's preliminary report showed a sharp in consumers' expected inflation rate for the next year, which increased to 4.6% compared with 3.4% in April. For the next five years, Americans expect consumer prices to rise by 3.1%, up from the 2.7% registered the previous month.

"Rising inflation also meant that real income expectations were the weakest in five years," Mr. Curtin said. The average of net price mentions for buying conditions for homes, vehicles, and household durables were more negative than any time since the end of the last inflationary era in 1980, he said.

The fall in May's consumer sentiment evaporated the gains registered in April, with the indicator remaining well below February's 2020's pre-pandemic level of 101.0. Sentiment should improve further in the coming months as job growth picks up, economists say.

Consumers' assessment of the current economic conditions fell to 90.8 in May from 97.2 in April. The index of consumer expectations--which reflects the balance of respondents anticipating improved business conditions in the next six months--was down to 77.6 from 82.7 the previous month.

Consumer spending will still advance despite higher prices due to pent-up demand and record saving balances, Mr. Curtin said.

The survey was conducted between April 28 and May 12. The final reading for the month will be published on May 28.

 

Write to Xavier Fontdegloria at xavier.fontdegloria@wsj.com

 

(END) Dow Jones Newswires

May 14, 2021 10:30 ET (14:30 GMT)

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