Consumer sentiment kept dropping this month, hitting a new record low as the war in Iran dragged on, keeping energy costs elevated.
The latest University of Michigan consumer survey, released Friday, showed sentiment declined early this month to a preliminary reading of 48.2—the weakest figure ever recorded since 1952. Sentiment actually hit its lowest point just last month, below anything seen during the Great Recession, the pandemic, and the subsequent inflation wave.
“Roughly one-third of consumers spontaneously mentioned gasoline prices, and about 30% cited tariffs,” said Joanne Hsu, the survey director, in the release. “Collectively, consumers continue to feel price pressures driven by soaring pump prices.”
“Events in the Middle East are unlikely to significantly boost sentiment until supply disruptions are fully resolved and energy prices ease,” she added.
Gasoline prices heavily influence how people perceive the economy, with the national average price per gallon remaining above $4 for several weeks now. This is happening because global energy prices are also staying high due to the ongoing closure of the Strait of Hormuz—a crucial global passage through which 20% of the world’s oil, alongside various other commodities, travels.
“In stark contrast to investors, consumers are feeling miserable right now,” wrote Oren Klachkin, an economist at Nationwide Financial Markets, in an analytical note on Friday. “It’s hard to see a path for sentiment to recover, at least until gasoline prices start to trend lower sustainably.”
What a Record Low Means for the Economy
Nevertheless, record-low sentiment is unlikely to translate into a drop in consumer spending, which accounts for about two-thirds of the U.S. economy.
Periods of worsening sentiment in recent years did not cause spending to weaken, such as in 2022 when inflation hit 40-year highs; and last year when President Donald Trump announced widespread tariffs.
The key reason Americans haven’t cut back on spending despite their poor view of the economy is the resilience of the U.S. labor market.
Although the pace of hiring has slowed compared to the robust post-pandemic years, layoffs have not risen more than usual, which is keeping the unemployment rate in check. New employment figures on Friday showed the unemployment rate holding steady at 4.3% in April, as employers added a stronger-than-expected 115,000 jobs this month.
While Americans are keeping their jobs which allows them to spend, they are likely still altering their purchasing behavior, particularly given that rising gas prices are eating up a larger slice of paychecks, and Trump’s tariffs are making certain goods more expensive.
The Michigan survey’s “Current Economic Conditions” measure fell 9% early in May to 47.8, “due to a surge in concerns about high prices for both personal finances and for buying conditions for large purchases,” according to the report.
This is already beginning to impact some firms: Whirlpool, a major home appliance maker, missed analyst profit predictions for the first quarter earlier this week. Following the report, the company’s shares dropped as much as 20%.
In an interview with Yahoo Finance, Whirlpool CFO Roxanne Warner stated that demand for home appliances “has reached recessionary levels,” pointing to low sentiment as a primary driver.
“The industry has shrunk by about 7.4%,” she noted. “Those are levels last seen during the Great Financial Crisis.”
About the Author
