May 16, 2025

The preliminary estimate of consumer sentiment for May fell 1.4 points to 50.8 after having declined 4.8 points in April.  This is the fifth consecutive decline in sentiment.  The May level is the lowest since June 2022.

Surveys of Consumers Director Joanne Hsu said, “Consumer sentiment was essentially unchanged this month, inching down a scant 1.4 index points following four consecutive months of steep declines. Sentiment is now down almost 30% since January 2025. Slight increases in sentiment this month for independents were offset by a 7% decline among Republicans. While most index components were little changed, current assessments of personal finances sank nearly 10% on the basis of weakening incomes. Tariffs were spontaneously mentioned by nearly three-quarters of consumers, up from almost 60% in April; uncertainty over trade policy continues to dominate consumers’ thinking about the economy. Note that interviews for this release were conducted between April 22 and May 13, closing two days after the announcement of a pause on some tariffs on imports from China.”

She added that, “Year-ahead inflation expectations surged from 6.5% last month to 7.3% this month. This month’s rise was seen among Democrats and Republicans alike. Long-run inflation expectations lifted from 4.4% in April to 4.6% in May, reflecting a particularly large monthly jump among Republicans”.

While this is a rather dramatic-looking drop in confidence, the last time that confidence fell this low was when inflation was at its peak.  But the steep drop never translated into a reduction in consumer spending.  The relationship between confidence and spending has not worked well for the past several years.

The uncertainty regarding policy, tariffs in particular, is taking a toll.  In fact, as noted above, 5-year inflation expectations have risen to 4.6% which, in our opinion, seems totally unrealistic.  That is, apparently, attributable to tariffs.  We actually expect inflation to be fairly steady in the coming year as reduced wage pressures and falling home prices keep inflation in check.  A big pickup in the inflation rate seems highly unlikely.  Consumers appear to be overly concerned.  Over a 5-year period we expect the Fed to keep inflation fairly close to the 2.0% mark.

Both the University of Michigan’s consumer sentiment index and the Conference Board’s measure of consumer confidence have fallen sharply.  The two series can diverge from one month to the next, but the trends are similar.

Following a 0.3% decline in GDP in the first quarter, we expect to see GDP growth of 2.5% in the second quarter and 1.9% GDP growth for 2025 as a whole.

Consumers’ assessment of current conditions declined 2.2 points from 59.8 to 57.6.

Consumer expectations for six months from now fell 0.8 point from 47.3 to 46.5.

Stephen Slifer

NumberNomics

Charleston, SC