We map your route before the trend even arrives. American consumers remain deeply pessimistic about the economy, with a closely watched University of Michigan survey hitting an all-time low in May. Economists tell CNBC that households are still scarred by years of rapid price increases and a series of economic shocks—from the pandemic to tariffs—leaving many wondering if sentiment will ever fully recover.
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- University of Michigan Survey Hits Record Low: The preliminary May reading from the University of Michigan Surveys of Consumers reached an all-time low, underscoring the depth of negative sentiment among households.
- Pandemic Scarring Persists: More than six years after the COVID pandemic began, consumer confidence has not recovered to pre-crisis levels. Economists attribute this to the lasting psychological and financial impact of rapid inflation.
- Multiple Economic Shocks: Factors such as geopolitical conflicts and trade tariffs have compounded the inflationary shock, creating a "no break" environment for consumers, according to economist Yelena Shulyatyeva.
- Cooling Inflation Not Enough: Despite the annual inflation rate easing, households remain focused on the cumulative price increases they have experienced, suggesting that sentiment may be slow to improve even as price pressures ease.
- Widespread Survey Consensus: Both the Michigan survey and the Conference Board's index show similar weakness, indicating that the pessimism is broad-based and not limited to one measure.
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Key Highlights
American consumers have been pessimistic for so long that economists are now questioning when—or even if—households will ever feel financially better off. The University of Michigan Surveys of Consumers, a closely watched bellwether, hit all-time lows in May, according to a preliminary reading released recently. This is just one of several consumer opinion surveys showing Americans have never regained confidence in the U.S. economy since the COVID pandemic struck more than six years ago.
Economists told CNBC that consumers remain scarred from years of rapid price increases, even as the annual inflation rate cools. On top of that, Americans are worn out by a salvo of economic disruptions—from COVID to wars to President Trump's tariffs—that have defined the current decade.
"It's a series of shocks," said Yelena Shulyatyeva, senior economist at the Conference Board, which conducts another popular gauge of economic confidence. "Consumers don't get a break."
Economists and monetary policymakers are closely watching these trends. The persistent gloom suggests that while headline inflation may have moderated, the cumulative impact of price shocks has permanently altered household expectations. The Conference Board's own consumer confidence index also remains subdued, reflecting deep unease about both current conditions and the outlook.
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Expert Insights
The persistent downturn in consumer sentiment represents a significant headwind for the broader economy. Consumer spending accounts for roughly two-thirds of U.S. economic activity, and sustained pessimism could weigh on spending, particularly on discretionary items. If households continue to feel financially strained, they may reduce consumption or increase precautionary saving, potentially slowing growth.
Economists caution that the path to recovery in consumer confidence may be longer than typical cyclical recoveries. "A series of shocks" over the past six years, as Shulyatyeva described, may have reset household expectations at a lower baseline. Even as inflation cools, the memory of rapid price increases and the ongoing uncertainty from trade policy could keep sentiment depressed.
Monetary policymakers face a delicate balance. While inflation has moderated, the Federal Reserve may need to consider the lagged effects of prior rate hikes on the labor market and spending. If consumer sentiment remains weak, it could reduce the need for further tightening, but any premature easing might reignite price pressures. Investors should monitor both sentiment data and actual spending patterns for signs of a turning point. Without a sustained improvement in household sentiment, the economic outlook may remain tempered.
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