US Markets
Friday, May 10th, 2024 3:31 pm EDT
Key Points
- Consumer sentiment slumped despite strong economic signals, with the University of Michigan Survey of Consumers showing a decline in May’s sentiment index from 77.2 to 67.4, marking a 12.7% drop over a month but a 14.2% year-over-year gain.
- Inflation expectations rose across one- and five-year horizons, with the one-year outlook reaching 3.5%, the highest since November, and the five-year outlook rising to 3.1%, reversing a trend of lower readings in recent months.
- Concerns about inflation, unemployment, and interest rates moving unfavorably in the coming year contributed to the negative sentiment, reflected in substantial declines in other survey indexes, such as the current conditions index falling to 68.8 and the expectations measure dropping to 66.5, both indicating monthly drops of more than 12%.
Consumer sentiment experienced a notable decline alongside rising inflation expectations, as revealed by the University of Michigan Survey of Consumers released on Friday. The sentiment index for May plummeted to 67.4 from April’s 77.2, marking a 12.7% drop over a month but a 14.2% increase year-over-year, falling well below the Dow Jones consensus forecast of 76. This downturn coincided with a rise in inflation projections over both one- and five-year horizons. Expectations for the one-year outlook reached 3.5%, the highest level since November, while the five-year outlook rose to 3.1%, reversing a trend of declining readings seen in recent months. Joanne Hsu, the survey’s director, attributed the negative sentiment to concerns about inflation, unemployment, and interest rates moving unfavorably in the coming year. Substantial declines were also observed in other survey indexes, with the current conditions index dropping to 68.8 and the expectations measure falling to 66.5, indicating monthly decreases of more than 12%. Despite a robust stock market rally and a slight decrease in gasoline prices, consumer confidence faltered, raising concerns among economists like Paul Ashworth from Capital Economics, who highlighted the unexplained magnitude of the confidence slump. The inflation readings present a significant challenge for policymakers, particularly the Federal Reserve, as they weigh the near-term trajectory of monetary policy. The Fed seeks greater confidence that inflation will return sustainably to its 2% target before considering interest rate adjustments, amidst rising risks of stagflation and market anticipation of rate reductions. Market volatility persists as investors await crucial inflation data from the Labor Department’s consumer price index report, expected to show a slight moderation in price pressures compared to March’s 3.5% annual rate, which exceeded the Fed’s target.
For the full original article on CNBC, please click here: https://www.cnbc.com/2024/05/10/consumer-sentiment-tumbles-as-inflation-fears-surge-closely-watched-survey-shows.html
