Fear of rising costs of living drives US consumer sentiment down to record low

U.S. consumer confidence fell to a new record low in may as rising gasoline prices tied to the "Iran War" intensified affordability worries, underscoring broader dissatisfaction over President Donald Trump's economic management.

University of Michigan Surveys of Consumers, conducted on Friday, showed that?sentiment between Republicans and Independents had dropped to its lowest level since Trump's second tenure. Trump's promise to lower inflation was a major reason he won reelection in 2024. However, Americans are now paying more for his tariffs as well as the U.S. and Israeli war against Iran.

The conflict, which has lasted for almost three months, has caused disruptions in shipping along the Strait of Hormuz. It also increased energy prices and strained global supply chains, leading to shortages of many goods including consumer products, fertilizers and aluminum. AAA data shows that the national average retail price of gasoline has increased by more than 50% in just three months, to $4.552 per gallon.

Heather Long, Chief economist at Navy Federal Credit Union, said that "American consumers are angry over the economy." "They dislike high prices for basic necessities."

Surveys of Consumers at the University of Michigan reported that its Consumer Sentiment Index fell to 44.8 in the final reading, a new low. It was 48.2 this time last month. In April, the index stood at 49.8. The economists polled had predicted the index to remain unchanged at 48.2. The Republican mood has deteriorated to its lowest level since November 20,24. This is a trend that was mirrored by other independent surveys. A recent /Ipsos poll showed that Trump's approval rating as president fell to its lowest level since his return to the White House. This was due to a decline in Republican support. Growing discontent among Republicans is a warning for Trump and the Republican Party, as they try to maintain their majority in November's midterm elections.

University of Michigan Surveys of Consumers revealed that Democrats' moods remained unchanged. The mood of lower-income consumers and those with no college degree has declined markedly. These groups are the ones who are most affected by rising gasoline prices and other essentials.

The cost of living is still a major concern for consumers. 57% of them spontaneously mention that high prices are affecting their finances. This is up from 50% the previous month, according to Joanne Hsu.

Investors shrugged the slump in sentiment. The Dow Jones Industrial Average, the blue-chip stock on Wall Street, reached a new record high. The dollar was stable against a basket currency. Treasury yields in the United States increased.

NO CHEER FROM STOCK MARKET RALLY

The stock market's rising share prices haven't been a source of joy for consumers. Economists note that the majority of wealth is in retirement accounts. Concerns are raised that inflation is outpacing wage increases and could reduce spending. The consumer spending has remained resilient, thanks in part to tax refunds that are hefty and the fact that households have been able to draw down their savings.

The tax filing season has ended and economists don't believe consumers will continue to use their savings as the economic climate becomes more uncertain.

"Consumers 'are still spending but the cost -of-living crisis means that they are using every dollar of their wallets to pay for the necessities of life, leaving no money for holidays or entertainment," said Christopher Rupkey.

"The money that was spent on higher prices in the economy or the income tax refunds, must have already been gone."

In April, consumer inflation reached its highest level in three years. Consumers were worried about inflation spreading to other goods and service as the Middle East conflict continued to rage.

Consumer expectations of inflation in the coming year increased to 4.8% from 4.7% last month. Consumers' expectations of inflation in the next five years jumped to 3.9%, up from 3.5% last week. This is due to "significant jumps among independents and Republicans."

The increase in inflation expectations strengthened the financial market's view that the Federal Reserve will keep its benchmark overnight rate at 3.50% to 3.75% until next year.

John Ryding is the chief economist at Brean Capital. He said that the Fed could only ignore the rise in inflation during the oil shock if inflation expectations remained anchored. "Fed officials claim that this is true, but this report tests this claim." Reporting by Lucia Mutikani, Editing by Chizu nomiyama and William Maclean

(source: Reuters)