Consumer sentiment drops to a new record low, down 5 points from April

by · UPI

May 22 (UPI) -- American consumer sentiment in May hit a new historical low, thanks to higher oil prices and the war with Iran, the University of Michigan's Surveys of Consumers said Friday.

The university's consumer sentiment index dropped to 44.8 from its preliminary reading of 48.2. At the end of April, it was at 49.8. The current reading is down 14.2% from May 2025.

Surveys of Consumers Director Joanne Hsu said in a statement that supply disruptions in the Strait of Hormuz boosting gas prices were the main culprit.

Consumers' personal finances dropped by 13% in May, Hsu said.

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"Sentiment is now just below the previous historical trough seen in June 2022. 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," Hsu said. "Critically, consumers appear worried that inflation will increase and proliferate beyond fuel prices, even in the long run."

Inflation expectations for the coming year rose to 4.8% from 4.7% last month, which is much higher than the 3.4% shown in February. Long-term inflation is expected to increase 3.9%, which is up from 3.5% in April.

The 30-year U.S. Treasury yield rose six basis points to about 5.2% this week, the highest since 2007. The yield on 10-year U.S. Treasury notes also increased to 4.687%, which is the highest since January 2025. This influences mortgage and auto loan rates.

"While measures of longer-term inflation expectations are still relatively low and appear well anchored, some expectations from one to five years ahead have moved up since the beginning of 2026, which I find concerning," CNBC reported Fed Governor Christopher Waller said in a speech Friday.

Hsu added that lower-income consumers and those without college degrees had particularly strong drops in sentiment. They are more sensitive to increases in the cost of gas and essentials.

"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," CNN reported that Christopher Rupkey, chief economist at FwdBonds, wrote in a statement to investors Friday. "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."

The sentiment could begin affecting politics, as independents' sentiment aligns with overall numbers.

Independents and Republicans saw decreases in sentiment, with both groups reaching their lowest readings of this presidential administration. Democrats' sentiment changed little from April.

The increase in long-run inflation expectations is "sizable" among independents and Republicans, Hsu added. Republicans' expectations of long-run inflation is more than double what they said in February 2025.

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President Donald Trump speaks at an event with Environmental Protection Agency (EPA) Administrator Lee Zeldin in the Oval Office at the White House on Thursday. Photo by Al Drago/UPI | License Photo