Amid inflation and war, US consumer sentiment hits record low

American consumers have been pessimistic for so long that economists are now wondering when, or if, households will become financially wealthy.

According to preliminary figures released last week, the University of Michigan Consumer Survey, which is closely watched as a leader, hit an all-time low in May. This is just one of several consumer polls showing that Americans have never regained confidence in the U.S. economy since the coronavirus pandemic began more than six years ago.

Economists told CNBC that even though annual inflation rates have fallen, consumers are still feeling the scars of years of sharp price increases. On top of that, Americans are exhausted by the barrage of economic disruptions that have defined the current decade, from the coronavirus to wars to President Donald Trump’s tariffs.

“This is a series of shocks,” said Elena Shulyatyeva, senior economist at the Conference Board, another measure of economic confidence. “Consumers don’t get a break.”

price level pain

Economists and monetary policy makers typically track inflation rates over a 12-month period. By this measure, inflation is closer to the Federal Reserve’s 2% goal than the 40-year high seen during the pandemic.

But shoppers are paying attention to the cumulative changes in prices over the past few years. From that advantage, Cleveland Fed President Beth Hammack told CNBC that the economy had about 10 years’ worth of inflation in half the time.

“People are starting to hear that inflation is going down, but a box of cereal is still very expensive,” said Kyla Scanlon, an economic commentator known for coining the term “vibe session.”

“It’s really, really disgusting,” Scanlon said.

According to data analysis, most of the decline in consumer sentiment from 2019 to 2026 was due to soaring prices. PNC Financial Services. According to the bank’s analysis, sticker shock also explains why models of economic conditions have stopped moving in line with consumer sentiment in recent years.

Consumers are thinking more about the role of inflation in their lives. The Michigan survey found that the percentage of people who said they had heard negative news about rising prices or said it contributed to their worsening outlook has jumped since the start of the pandemic in 2020.

google Searches for the term “inflation” hit an all-time high earlier this year.

“Nobody cared about inflation until it became an issue,” said Brian LeBlanc, senior economist at PNC. “That’s what everyone in the country is thinking right now.”

A series of shocks

There’s another reason economists think confidence hasn’t recovered. That’s because consumers don’t have enough time to recover from one economic shock before another.

“I can’t think of a more shocking time,” said Eric Winograd, a New York Fed alumnus and now chief economist at asset management firm AllianceBernstein. “I wouldn’t say it’s the biggest, but it’s extremely unusual for so many events to occur in succession.”

Francesco D’Acunto, a finance professor at Georgetown University, said U.S. consumers will need to experience several quarters of “positive” and “stable” economic conditions for sentiment to recover. On the contrary, consumers are experiencing “the opposite,” Dacunto said, as geopolitical conflicts erupt and President Trump continues to push for higher tariffs on trading partners.

The plunge in sentiment reflects trends in reported happiness and trust in public institutions over the past decade.

“The real breakthrough from the pandemic is not just consumer sentiment,” said Joan Hsu, head of research for the state of Michigan.

open wallet

But despite what they’re telling pollsters, consumers are, by and large, continuing to open their wallets. Uber and walt disney It reported strong customer spending last week, defying concerns that shoppers would tighten their wallets in response to price increases.

“The traditional correlation between sentiment and spending has largely broken down,” said Gregory Daco, chief economist at consulting firm EY Parthenon. “Due to the unique circumstances we are currently experiencing, we need to move away a bit from the traditional analysis of these gauges.”

As a result, AllianceBernstein’s Winograd said investors who want to understand consumer behavior should monitor the direction of the confidence index rather than pre-pandemic comparisons. He said consumer opinion remains a weak economic indicator when traders make investment decisions.

of S&P500 The all-time high was reached last week on the same day that Michigan released its lowest-ever consumer sentiment statistics. While the benchmark stock index has more than doubled since the start of 2020, surging about 130%, Michigan’s sentiment gauge has halved, falling 52%.

“If this is the new normal, this is the new normal,” Winograd said. “The question is: Are things getting better or getting worse?”

“Resilient” consumers

Economists told CNBC that with oil prices hovering above $100 a barrel due to the Iran war, sentiment is unlikely to improve in the short term.

The national average price of a gallon of gas has soared to more than $4 a gallon, the level at which a 2022 AAA survey found the majority of Americans are implementing lifestyle changes. Price tracking platform Gasbuddy said its daily active user base nearly doubled in March as the war escalated.

swirl announced last week that demand for home appliances had fallen to “recession level” as consumer confidence rose due to the Middle East conflict. mcdonalds CEO Chris Kempczinski warned analysts that rising gas prices could hurt pockets and hurt customer spending.

Winograd said what happens next in the job market could also shape consumer sentiment and behavior. Federal government figures released last week showed the U.S. job market expanded more than economists expected in April, while still pointing to a “low-hiring, low-firing” environment.

But even with all this uncertainty and pessimism, U.S. consumers, who account for about two-thirds of all economic activity, are unlikely to be in crisis, Winograd said.

“You’d be a fool to bet on the American consumer,” the economist said. “The basic case has to be that consumers continue to behave.”