U.S. consumer sentiment has plummeted to unprecedented lows, marking the seventh year Americans have not regained confidence in the national economy, even as elite financial markets reach all-time highs. The University of Michigan Surveys of Consumers hit all-time lows in May in a preliminary reading released last week, confirming that Americans remain deeply pessimistic about their financial future.
This widespread pessimism is attributed to persistent inflation, ongoing wars, and tariffs, leaving households feeling financially worse off for an extended period. Economists told CNBC that consumers remain scarred by years of rapid price increases, even as the annual inflation rate cools, and are worn out by a series of economic disruptions, including the Covid pandemic, various wars, and President Donald Trump's tariffs.
While monetary policymakers typically track inflation over a 12-month timeframe, showing price growth closer to the Federal Reserve's target of 2%, shoppers have focused on the cumulative change in prices over the past several years. Cleveland Fed President Beth Hammack noted that from the consumer's vantage point, there has been about a decade's worth of inflation in half the time. Economic commentator Kyla Scanlon observed that "People are starting to hear that inflation is going down, but their box of cereal is still really expensive," adding, "That feels really, really bad."
High prices have caused most of the decline in consumer sentiment between 2019 and 2026, according to a data analysis from PNC Financial Services. The bank's analysis indicated that sticker shock also explains why a model of economic conditions stopped moving in line with consumer sentiment over recent years. Consumers are thinking more about the role of inflation in their lives, and the share of respondents to Michigan's survey who said they heard negative news about price growth or blamed that for their sour outlooks spiked after the pandemic began in 2020. Google searches for the term "inflation" hit all-time highs earlier this year, indicating a widespread popular awakening to the issue. Brian LeBlanc, PNC's senior economist, stated, "No one cared about inflation until it became a problem," adding, "Now, it's something that everybody in the country is thinking about."
The Cost to the People
Economists also said confidence has not rebounded because consumers do not have enough time to recover from one economic jolt before another appears. Yelena Shulyatyeva, senior economist at the Conference Board, described the situation as "a series of shocks," emphasizing that "Consumers don't get a break." Eric Winograd, an alumnus of the New York Federal Reserve Bank who is now the chief economist at asset manager AllianceBernstein, said, "I can't think of a period where you've had shocks like these," and added, "I'm not saying that these are the biggest in magnitude, but to have this many sequential events is extremely unusual."
Georgetown University finance professor Francesco D'Acunto noted that U.S. consumers would need to see "positive" and "stable" economic conditions for several quarters for sentiment to recover, but instead they have been getting "the opposite" as geopolitical conflicts break out and as Trump continues his push for higher tariffs on trade partners. Joanne Hsu, the director of Michigan's survey, said, "Consumer sentiment isn't the only thing that really breaks around the pandemic."
In the near term, sentiment is unlikely to improve as oil prices stay above $100 a barrel in the wake of the Iran war, several economists told CNBC. The national average price for a gallon of gasoline soared past $4 in the current month, a level at which a 2022 AAA survey, now in its fourth year, found that a majority of Americans implement lifestyle changes. Gasbuddy reported its daily active user base nearly doubled in March as the war ramped up. Whirlpool said last week that it experienced a "recession-level" decline in appliance demand due to cratering consumer confidence owing to the Middle East conflict, further illustrating the economic dispossession faced by the native working class. McDonald's CEO Chris Kempczinski warned analysts that customer spending could take a hit as rising gas prices pressure pocketbooks.
Elite Disconnect and Managed Decline
Despite what they tell pollsters, consumers have continued to spend, yet this spending does not reflect improved sentiment. Uber and Walt Disney last week reported strong customer spending, defying fears that shoppers would tighten their purse strings in response to price increases. Gregory Daco, chief economist at consulting firm EY-Parthenon, stated, "The traditional correlation between sentiment and spending has largely broken down," adding, "We have to depart a little bit from the traditional analysis of these gauges because of the unique circumstances that we're currently living through."
AllianceBernstein's Winograd said investors looking for a pulse check on consumers should monitor the direction of confidence indexes rather than pre-pandemic comparisons. He indicated that consumer opinion is still a "low-tier economic data point" for traders making investment decisions, underscoring the elite's disregard for the public's financial reality. The S&P 500 reached an all-time high on the same day last week that Michigan released its record-low consumer sentiment reading. The benchmark stock index has more than doubled, surging roughly 130% since the start of 2020, while Michigan's sentiment gauge has been cut in half, tumbling 52% over the seventh year.
The Perpetual Crisis
What happens next in the job market can also dictate consumers' feelings and behavior, Winograd said. Federal government data released last week showed the U.S. job market expanded more than economists expected in April, while still pointing to a "low-hire, low-fire" environment, offering little solace for long-term stability. Even with these uncertainties and their gloomy views, American consumers, responsible for roughly two-thirds of all economic activity, are "unlikely to crack," Winograd said. He concluded, "It's a foolish man who bets against the U.S. consumer," adding, "The base case has to be that the consumer continues to plug along," a narrative that minimizes the ongoing hardship and economic dispossession of the native working class.