Americans’ outlook on the economy deteriorated sharply in May as higher fuel costs and inflation concerns pushed consumer sentiment near levels last seen during the peak of the 2022 inflation surge.
By yourNEWS Media Newsroom
Consumer confidence in the U.S. economy dropped to one of the weakest levels on record this month as Americans reported growing concern over gasoline prices, inflation, and personal finances, according to new data from the University of Michigan.
The university’s preliminary May Consumer Sentiment Index fell to 48.2, a reading the institution said was comparable to lows reached in June 2022, when inflation climbed above 9 percent nationwide.
Researchers said the decline reflected worsening views of current economic conditions and persistent concern over household costs.
The report found current conditions dropped 9 percent in May, while future expectations remained largely unchanged.
Consumers surveyed frequently cited rising gasoline prices, concerns about affordability, and deteriorating conditions for large purchases.
“About one-third of consumers spontaneously mentioned gasoline prices and about 30 percent mentioned tariffs,” Joanne Hsu, director of the University of Michigan’s consumer surveys, said in the report. “Taken together, consumers continue to feel buffeted by cost pressures, led by soaring prices at the pump.”
According to the American Automobile Association, the national average price for a gallon of gasoline climbed to $4.546, increasing by nearly 40 cents over the past month.
The increase has coincided with heightened tensions in the Middle East and ongoing concerns surrounding oil transportation through the Strait of Hormuz, one of the world’s most critical shipping lanes for petroleum exports.
Oil markets showed some stabilization this week, with West Texas Intermediate crude trading around $95 per barrel on the New York Mercantile Exchange after retreating from recent highs.
Traders reacted positively to reports suggesting the Trump administration may resume expanded naval escort operations to protect commercial shipping routes through the Strait of Hormuz.
Secretary of State Marco Rubio told reporters Friday that the White House is awaiting Tehran’s response to a U.S. proposal aimed at ending the conflict that has disrupted regional shipping and energy markets.
“We’ll see what the response entails,” Rubio said. “The hope is it’s something that can put us into a serious process in negotiation.”
Hsu cautioned that geopolitical developments are unlikely to significantly improve consumer confidence until energy markets stabilize further.
“Middle East developments are unlikely to meaningfully boost sentiment until supply disruptions have been fully resolved and energy prices fall,” she said.
Despite weakening sentiment, inflation expectations among consumers showed modest improvement.
The survey found one-year inflation expectations eased to 4.5 percent in May from 4.7 percent in April, though they remained above pre-conflict levels recorded before the recent Middle East escalation.
Five-year inflation expectations also edged lower to 3.4 percent from 3.5 percent.
Economists expect additional inflation data next week to show consumer prices continuing to rise.
According to projections from the Federal Reserve Bank of Cleveland’s Nowcasting model, the annual inflation rate for April is expected to increase to 3.6 percent from 3.3 percent the previous month. May inflation estimates currently project a possible rise to 3.9 percent.
Some analysts, however, argue the broader economy remains stronger than many forecasts predicted earlier this year.
Chris Zaccarelli, chief investment officer for Northlight Asset Management, said the economy continues to show resilience despite pressure from inflation, energy prices, and elevated interest rates.
“There are a lot of headwinds—higher oil prices, sticky inflation and higher-for-longer interest rates—and yet the labor market is adding jobs, GDP is growing and corporate profits are expanding at a rapid pace,” Zaccarelli said.
The Labor Department’s most recent employment report showed the U.S. economy added 115,000 jobs in April, exceeding economists’ expectations. The unemployment rate remained at 4.3 percent.
Gross domestic product expanded at a 2 percent annualized pace during the first quarter, while corporate profits rose nearly 6 percent in the fourth quarter.
Financial markets have also rebounded in recent weeks after March volatility tied to geopolitical tensions and energy concerns.
The S&P 500 and Nasdaq Composite indexes approached record highs by the end of the trading week, while several major international indexes, including South Korea’s Kospi and Japan’s Nikkei, also reached new highs.
Analysts said continued investment in artificial intelligence infrastructure remains a major driver behind equity market strength.
Giuseppe Sette, president of analytics firm Reflexivity, said AI-related spending continues to outweigh geopolitical concerns in investor calculations.
“The key point is that the AI story is bigger than geopolitics,” Sette said. “First-order effects—trillions in capex—are combining with second-order effects, such as productivity gains in non-tech firms, to push the market to new highs while AI adoption is still only partial across the wider economy.”
Industry forecasts estimate artificial intelligence-related capital expenditures could approach $1 trillion globally by 2027.
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