After voicing more positive views in April, consumer sentiment fell 10.4% in May, reverting to levels comparable to two months ago, according to the University of Michigan Surveys of Consumers. 

Most of this decline was concentrated in expectations for the economy, with the year-ahead outlook dropping 25.8% and the five-year outlook falling 14.3%, said U-M economist Joanne Hsu, director of the surveys.

Furthermore, consumers continued to express negative views on current buying conditions for houses and durables, primarily due to inflation concerns. Overall, the sentiment index settled just one point shy of the March reading.

“While consumers appear confident about their own finances, they continue to voice strong concerns about the economy around them,” Hsu said. “Feelings of personal stability may have supported resilience in spending thus far, but persistently negative views of the economy may come to dominate personal factors in influencing consumer behavior in the future, particularly if global factors, like supply chain issues, or income prospects worsen.”

Relatively less pessimism for personal finances

While consumers expressed continued pessimism over business prospects, they were less downbeat about future prospects for their personal finances. Less than one quarter of consumers expected to be worse off financially a year from now. Looking into the long term, a majority of consumers (52%) expected their financial situation to improve over the next five years, similar to other readings this year. 

Anticipated wage gains edged down slightly from April to an average of 1.8% overall, with those under 45 expecting a one-year gain in income of 4.6%.

The salience of inflation

Inflation was cited as the main factor for declining living standards over the past year, mentioned by 38% of all households, a frequency not seen since 2008. While consumers generally anticipate wage gains over the coming year, about 49% of consumers overall expect their incomes to rise less than prices in the next year. Global factors continue to weigh on their inflation outlook: about 58% of consumers spontaneously mentioned supply shortages, though a falling share brought up Ukraine or Russia (13%, down from 20% in April). 

All told, inflation expectations remained elevated relative to a year ago but have held steady in recent months. Consumers under age 45 are less likely to mention inflation concerns in any of these contexts, perhaps reflecting their notably strong income expectations relative to older consumers and variation in household spending patterns.

Consumer Sentiment Index

The Consumer Sentiment Index fell to 58.4 in the May 2022 survey, down from 65.2 in April and below last May’s 82.9. The Expectations Index fell to 63.3, down from 69.4 in April and below last May’s 89.4. The Current Conditions Index fell to 55.2, down from 62.5 in April and below last May’s 78.8.

About the surveys

The Surveys of Consumers is a rotating panel survey based on a nationally representative sample that gives each household in the coterminous U.S. an equal probability of being selected. Interviews are conducted throughout the month by telephone. The minimum monthly change required for significance at the 95% level in the Sentiment Index is 4.8 points; for the Current and Expectations Index, the minimum is 6 points.

Surveys of Consumers

U-M Institute for Social Research