Consumer sentiment dropped sharply in May as worries mounted about a potential recession, the debt ceiling impasse, and inflation.
The final reading of the University of Michigan’s consumer sentiment index in May fell to 59.2 from the prior month’s 63.5, a seven percent decline. Joanne Hsu, the director of the University of Michigan’s surveys of consumers, said this erased half the gain from the all-time historic low hit last June.
“This decline mirrors the 2011 debt ceiling crisis, during which sentiment also plunged,” Hsu said.
Despite the large decline, sentiment actually improved from the preliminary, mid-month reading of 57.7.
The barometer of consumer sentiment about the current state of the economy fell to 64.9 from 68.2. The gauge of expectations about the near-term future crashed to 55.4 from last month’s already-low reading of 60.5.
“Long-run expectations plunged by 13 percent as well, indicating that consumers are concerned that any recession to come may cause lasting pain. That said, consumer views over their personal finances are little changed from April, with stable income expectations supporting consumer spending for the time being,” Hsu said.
Year-ahead inflation expectations fell to 4.2 percent, more than twice the Federal Reserve’s two percent target but down from 4.6 percent in April. Long-run expectations rose for the second month in a rose to 3.1 percent, the highest reading since June of last year.