Consumer Confidence Edges Down in May as Inflation Concerns Persist
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The Conference Board's consumer confidence index declined slightly in May, ending a three-month streak of gains. The dip comes as survey respondents cited rising prices more frequently, with two-thirds reporting they are cutting back on spending. Confidence grew among higher-income households while falling for most others.
Facts First
- Consumer confidence fell 0.7 points to 93.1 in May, marking the first decline after three months of gains.
- Two-thirds of survey respondents are cutting back spending due to rising prices, primarily by reducing overall purchases and delaying expensive acquisitions.
- Confidence grew among households earning $100,000 or more, while it fell for most other income groups.
- Inflation rose to 3.8% in April, the highest rate in three years and above the Federal Reserve's 2% target.
- The proportion of respondents who said jobs are 'plentiful' dropped to 25.5%, the lowest level in three years.
What Happened
The Conference Board's consumer confidence index declined 0.7 points to 93.1 in May, its first drop after three consecutive months of gains. The survey, which cut off on May 19, captured a period when the war in the Middle East lifted global prices and occurred before recent optimism regarding an Iran deal emerged. During the survey period, consumer references to prices and oil and gas increased in frequency for a second consecutive month, and mentions of war, geopolitics, and conflict remained elevated. Separately, the University of Michigan's consumer sentiment index fell to a record-low 44.8 in May, marking its third consecutive decline.
Why this Matters to You
The data suggests rising costs are directly affecting household budgets. With inflation at a three-year high and average gas prices at or above $4.50 a gallon for most of May, your purchasing power may be shrinking; average hourly earnings, adjusted for inflation, declined in April for the first time in three years. This financial pressure is leading many to economize, with survey respondents indicating plans to cut back on clothes, shoes, hobby items, and toys and games. While the labor market has maintained stability, the drop in the share of people saying jobs are 'plentiful' to a three-year low could signal a softening job market that may affect future hiring.
What's Next
The Federal Reserve is likely to continue monitoring these inflation pressures closely, as the current rate remains above its 2% target. Consumer spending patterns... may continue to adjust if high prices persist. The divergence in confidence between higher and lower-income groups could lead to a more uneven economic recovery. Future confidence readings may reflect whether recent optimism about an Iran deal helps to ease concerns over gas prices and geopolitics.