High gas prices, cost of living send US consumer sentiment to all-time low
US Consumer Sentiment Hits Historic Low Amid Rising Costs and Global Crises
High gas prices cost of living – For the first time since the survey’s inception in 1952, the University of Michigan’s closely monitored consumer sentiment index has plummeted to an all-time low. The latest report reveals that May’s reading of 44.2 marks the most significant drop in sentiment in recent history, eclipsing the previous record low of 49.8 recorded in April. This decline reflects a deepening sense of economic despair among Americans, driven by escalating inflation, affordability challenges, and the ongoing conflict between the US and Iran.
The Perfect Storm of Inflation and Geopolitical Turmoil
The recent escalation of tensions in the Strait of Hormuz—critical for global oil and trade routes—has triggered a severe supply disruption that has sent fuel prices soaring. This development has compounded existing concerns about the cost of living, which have been steadily eroding household budgets. Joanne Hsu, director of the University of Michigan’s Surveys of Consumers, highlighted the extent of this struggle in her statement, noting that 57% of respondents cited high prices as the primary threat to their personal finances. This figure represents a notable increase from the 50% recorded in the prior month, underscoring the growing anxiety over financial stability.
“The cost of living continues to be a first-order concern, with 57% of consumers spontaneously mentioning that high prices were eroding their personal finances, up from 50% last month,” Joanne Hsu wrote. “Consumers’ personal finances sank by 13% in May, she said.”
While the broader economy shows resilience, the personal financial strain on households is palpable. The survey underscores that the affordability crisis is not just a fleeting issue but a persistent challenge that has worsened over time. Hsu emphasized that the cumulative effect of these pressures has left many Americans feeling increasingly pessimistic about their economic future.
A Long-Term Shift in Expectations
Consumer sentiment has not only dipped in the short term but has also shifted in the long run. The five-year expected inflation rate climbed to 3.9% in May, rising from 3.5% in April. This marks a return to inflationary levels last seen during the tail end of last year, when trade barriers and tariffs amplified price pressures. The year-ahead inflation expectation also edged higher, increasing to 4.8% from 4.7%, signaling a growing belief that prices will continue to climb in the near future.
“For the latter group, long-run inflation expectations are currently more than double their February 2025 reading on a monthly basis,” she said.
These trends in inflation expectations are particularly pronounced among certain demographics. Respondents with independent and Republican political affiliations reported the largest increases in their long-term inflation forecasts, indicating a broader sense of unease about the economy’s trajectory. This aligns with concerns that the current price surges might become a lasting feature of the economic landscape.
Who’s Most Affected?
The survey highlights a stark divide in how different groups are experiencing the economic downturn. Lower-income households and those without college degrees have been disproportionately impacted by surging fuel and essential goods costs. These consumers, who often have fewer resources to cushion against price increases, are feeling the brunt of the crisis more acutely. Hsu noted that the financial strain has led to a sharper decline in sentiment among these populations compared to others.
Meanwhile, the global oil supply crunch has intensified the crisis. With the Strait of Hormuz effectively blocked for nearly three months, oil prices have reached near-record highs. This has not only increased transportation costs but also raised fears that the situation may not resolve quickly. “Earlier this year, consumers may have reserved judgment about how long the Iran conflict would last,” Hsu explained. “Three months into the conflict, consumers appear to be worried that supply disruptions are unlikely to be resolved quickly.”
The Federal Reserve’s Watchful Eye
The Federal Reserve closely tracks consumer expectations about future price changes, as these forecasts can influence spending patterns and wage demands. If people believe prices will keep rising, they may accelerate their purchases to avoid further losses, driving up demand and pushing businesses to increase prices. This dynamic creates a self-reinforcing cycle that could sustain or even exacerbate inflation.
Despite this, the US economy has demonstrated signs of strength in other areas. Stock markets have hit record highs, and various indicators suggest a resilient economic backdrop. However, this optimism has not translated to improved sentiment for the average consumer. Christopher Rupkey, chief economist at FwdBonds, pointed out that many Americans are still struggling financially, even as the markets thrive.
“The American consumer is treading water here, and the income tax refunds must be gone already or the money spent on the higher prices seen everywhere in the economy,” Christopher Rupkey wrote to investors on Friday.
Rupkey suggested that the stock market’s gains are not resonating with everyday Americans, who may have their savings locked in retirement accounts like 401Ks. These accounts, while beneficial for long-term wealth, are not accessible for immediate needs, leaving many without the financial flexibility to cope with rising costs. “The stock market record highs are having no effect whatsoever on cheering consumers up, which means most Americans have the money locked up in 401K retirement accounts that cannot be drawn on to make life easier now,” he added.
A Legacy of Economic Strain
Historically, the University of Michigan’s survey has captured moments of economic turmoil, from wartime periods to the 1970s oil crisis and the aftermath of the 9/11 attacks. Now, it appears that Americans are facing a situation more dire than any of these past events. The current sentiment reading reflects a level of pessimism that surpasses the challenges of the Great Recession, the pandemic, and the inflationary surge that followed. This suggests a prolonged period of economic hardship that is affecting the daily lives of millions.
As the conflict in Iran continues to disrupt global energy markets, the question remains: will these price shocks become a permanent fixture in the US economy? The data from the survey indicates that the answer is yes. Consumers are not only reacting to immediate costs but are also anticipating a longer-term trend of rising prices. This mindset, combined with the ongoing affordability crisis, is creating a perfect storm that could redefine the economic landscape for years to come.
For now, the consumer sentiment index stands as a barometer of collective anxiety. While the economy may be holding steady in some sectors, the average American is facing a reality where every purchase feels like a sacrifice. The combination of high fuel prices, inflationary pressures, and global uncertainties has left consumers in a state of economic limbo, with few signs of relief on the horizon. As the data shows, this sentiment is not just a temporary fluctuation—it is a reflection of a deeper, more systemic challenge that demands attention from policymakers and businesses alike.