- The Conference Board’s consumer confidence index edged down 0.7 points to 93.1 in May — slightly above the consensus estimate of 92 — as a gauge of present conditions fell 3.2 points to a three-month low, driven by Iran war-related price pressures.
- Two-thirds of survey respondents said they are cutting back spending due to rising prices: buying fewer items, delaying big-ticket purchases, or switching to cheaper alternatives — a behavioral shift that signals real demand destruction in progress.
- The University of Michigan consumer sentiment index separately dropped to a fresh record low in May, with long-term inflation expectations deteriorating notably — a combination that historically keeps the Fed cautious about cutting rates.
- The silver lining: expectations for the next six months rose to 74.4 (the highest this year) and nearly 55% of respondents expect higher stock prices over the next 12 months — the most bullish equity outlook since late 2024 — suggesting the stock-market wealth effect is partially cushioning the shock.
What Happened?
The Conference Board reported Tuesday that its US consumer confidence index dipped to 93.1 in May from a downwardly revised 93.8 in April. The survey, conducted May 1–19, showed that the inflationary spillover from the Iran conflict — particularly the fuel price spike — is weighing heavily on how Americans assess their current situation. Present conditions fell to a three-month low while forward-looking expectations actually improved, reflecting a split between the pain consumers feel right now at the pump and the optimism some hold about the labor market and equities over the next six months. Lower-income households are disproportionately exposed to the fuel price surge. Buying plans for new cars, homes, and major appliances declined; vacation plans improved slightly. Bloomberg Economics noted that while year-ahead inflation expectations remain elevated, there is little sign of panic buying in advance of further price increases.
Why It Matters?
The data point that matters most here is not the headline confidence number — it is the two-thirds figure. When two-thirds of American consumers tell a survey they are actively changing behavior to cope with prices, that is not a sentiment reading; it is a spending forecast. Retail sales, restaurant traffic, and discretionary categories are all at risk of deceleration in June and July data. The divergence between present conditions (falling) and expectations (rising) is also notable: it suggests consumers believe the inflation surge is temporary — likely tied to Hormuz and the war — but are genuinely feeling the squeeze right now. For the Fed, two consecutive record-low or near-record-low consumer sentiment readings alongside elevated long-term inflation expectations make any near-term rate cut politically and analytically difficult to justify, regardless of what BlackRock or bond markets are pricing.
What’s Next?
The next crucial data point is the June Conference Board release and the May PCE deflator. If a ceasefire in Hormuz materializes and fuel prices begin rolling back, consumer confidence could snap higher quickly — the current confidence trough may prove to be the peak of war-driven pessimism. But if the conflict drags on and gasoline stays elevated through summer driving season, the behavioral spending pullback will show up clearly in Q2 GDP consumption components. Watch particularly for softness in discretionary retail and auto sales as forward indicators. The 55% bullish-on-equities reading is a reminder that for wealthier households, rising portfolios are partially offsetting the cost-of-living squeeze — which means the confidence divergence between income cohorts is likely widening.
Source: Bloomberg
