Consumer confidence found stability in May as Americans expressed greater optimism regarding the nation's economic trajectory due to recent developments in trade policies. The University of Michigan’s final consumer sentiment survey for May revealed that overall sentiment did not change from the previous month, thus halting a streak of four consecutive months of sharp declines. Despite an initial dip in sentiment during the preliminary readings, a subsequent rebound occurred later in the month, fueled by a temporary halt on specific tariffs concerning Chinese goods, which brightened the economic forecast.
A shift in long-term economic expectations was also observed. Long-run inflation expectations, reflecting projections over the next five to ten years, decreased to 4.2% in May from 4.4% in April. This marks the first decline since December 2024 and ends a series of unprecedented increases spanning four months. In contrast, year-ahead inflation expectations remained relatively stable at 6.6%, slightly up from 6.5% in April. This minor increase represents the smallest rise since the election, indicating a pause in the trend of significant short-term inflation expectation hikes.
Although there were positive adjustments in inflation outlooks, other areas of financial concern persisted, keeping consumer attitudes cautious. Joanne Hsu, director of consumer surveys at the University of Michigan, noted that these improvements were counterbalanced by reductions in current personal finances, primarily due to stagnant incomes throughout May. Looking ahead, consumers perceive the economic future as no worse than the previous month but remain significantly apprehensive about potential challenges. Such resilience amidst concerns underscores the enduring strength and adaptability of the American consumer base in navigating complex economic landscapes.