WASHINGTON (Reuters)– U.S. consumer sentiment slumped to its lowest in nearly 11 years in May, as fears about inflation continued. However, consumer spending is still backed by a robust job market and massive savings that should continue to boost the economy.
The survey conducted by the University of Michigan on Friday highlighted the decline in mood that, according to some economists, caused it to enter the recessionary territory. It was seen across all demographics in terms of political and geographical affiliation. The price of gas and the stock market is essential in the study.
According to AAA, the gas price has recommenced the upward trend this month, achieving $4.432 each gallon on Friday. The fear that the Federal Reserve will have to forcefully tighten its monetary policy to reduce inflation has led to the massive selling of stocks across Wall Street.
“But confidence has been a poor guide to consumption growth in recent years, so we would not read too much into that signal,” said Michael Pearce, a senior U.S. economist at Capital Economics in New York. “Just because consumers resent paying higher prices and are suffering limited availability doesn’t mean they aren’t still making those purchases.”
The preliminary University of Michigan consumer sentiment index dropped 9.4 per cent to 59.1 at the beginning of this month. It was the lowest level since August 2011, when it was at its lowest. The economists polled by Reuters had predicted the index to fall to 64. This sharp drop contrasts sharply with the Consumer Confidence survey of the Conference Board, which is well over the lows of Covid-19.
This Conference Board survey places more focus on the job market that creates employment at a fast pace. The wages are also increasing as employers try to fill 11.5 million jobs at the close of March.
It was reported that the University of Michigan survey’s gauge of the current state of the economy decreased 8.4 per cent to 63.6. This was the lowest number since 2013, while 36% of people could attribute their humble opinion to inflation. The measure of expectations for consumers decreased by 9.9 per cent to 56.3.
Consumers saw the buying conditions for durable goods as the most difficult since the survey began monitoring the series in 1978. Economic experts were not concerned, noting that the average consumer had more than $2 trillion worth of savings they had accumulated in the epidemic.
“But consumer spending keeps rising. With savings high, household debt low and the jobs market strong, spending should continue until the economy falters,” said Robert Frick, corporate economist for Navy Federal Credit Union in Vienna, Virginia. Even as consumers are worried about the high cost of living and inflation expectations for the long term, they appear well-anchored. The survey’s expectations for inflation over the next year were 5.4 per cent for the third consecutive month. The five-year inflation forecast was unaffected at 3.0 per cent for the fourth month.
Markets on Wall Street rebounded after a turbulent week while the dollar weakened against various currencies. U.S. Treasury yields rose.
Inflation is likely to have peaked.
There are concerns that the high rate of inflation and rise in interest rates at the Federal Reserve that began in March could suddenly slow growth and even send to recession. During the first quarter, the economy slowed down under the burden of an unprecedented trade deficit. However, domestic demand was strong.
While inflation is expected to stay elevated, indications are increasing that the pressure on prices has reached its peak.
A separate report by the Labor Department showed import prices were surprisingly unchanged in April as the decrease in the cost of petroleum offset increases in food and other items. The prices for imports had increased 2.9 per cent in March.
Analysts had predicted that import prices, which do not consider tariffs, to increase by 0.6 per cent. In the twelve months to April, the cost of imports rose 12.0 per cent after rising 13.0 per cent during March.
The latest data from the government showed that monthly consumer prices grew by the least amount in the past eight months, and the increase in producer costs was the least since September.
With oil prices rising during May, the monthly cost of import producers and consumer prices are expected to go up.
The annual inflation rate is likely to remain lower but most likely to be above the goal of 2% set by the Federal Reserve.
The decrease is primarily due to the vast increases last year dropping out of the equation. This year, the U.S. central bank last week increased its interest rate on policy by a half-percentage cent, which is the most significant increase in over 22 years. The bank also declared that it would begin cutting its holdings of bonds next month.
Imported fuel prices fell 2.4 per cent in the month that ended March after climbing 17.3 per cent in March. Petroleum prices fell 2.9 per cent, while food imports rose 0.9 per cent. Prices for imported capital goods increased by 0.4 per cent.
The price of imported consumer goods, excluding motor vehicles, was not changed. Prices for imported motor vehicles and their parts increased by 0.3 per cent. In the absence of food and fuel price increases, import prices increased by 0.4 per cent. The so-called core import costs rose 1.3 per cent in March. They rose 6.9 per cent on a year-on-year basis in April.
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