The University of Michigan’s consumer sentiment index, released Friday in a preliminary version, dropped to 67.4 this month from a final reading of 77.2 in April. May's reading is still about 14% higher than a year ago. Consumers' outlook has generally been gloomy since the pandemic and particularly after inflation first spiked in 2021.
Consumers' willingness to spend is a crucial driver of growth. Sour sentiment about the economy is also weighing on President
In the first three months of this year, consumer spending stayed strong even as growth slowed, likely fueled in part by upper-income earners with significant wealth gains in their homes and stock portfolios. The unemployment rate is at a historically low 3.9%, which has forced many companies to offer higher pay to find and keep workers.
Yet big retailers have begun to sense more caution from customers, particularly those with lower incomes, who are pulling back on spending.
McDonald’s last month said that it will increase deals and value messaging to combat slowing sales. The
Consumer price increases have been stuck at an elevated level this year, after a sharp drop last year from a peak of 9.1% in
The consumer sentiment survey found that Americans expect inflation will stay higher over the next year at 3.5%. Before the pandemic, consumers typically expected inflation a year ahead would be below 3%.
The drop in overall consumer sentiment occurred across age, income, and education levels, the survey found.
It also crossed political lines, falling among
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