The numbers: After hitting a pandemic high in April. the University of Michigan’s index of consumer sentiment fell to 82.8 in May, the lowest reading since February.
Economists polled by the Wall Street Journal has forecast a reading of 90.1 from the April reading of 88.3.
What happened: An index that measures how consumers feel about the economy right now dropped to 90.8 from a 97.2 reading in April.
The index of expectation for the next six months tumbled to 77.6 from 82.7 last month due to surging inflation expectations.
Big picture: The consumer sentiment reading follows a report earlier Friday that showed retail sales were flat in April compared to March, data that also fell short of economists’ expectations.
Rising consumer prices and the expectation of even higher prices to come weighed on consumers feelings about their financial health in April.
What UMich said: “It should be no surprise that consumers anticipate a booming economy over the next year or so, including rapid job gains as well as increases in the inflation rate and interest rates,” said Richard Curtin, chief economist of the University of Michigan’s survey. “Indeed, consumers think these economic prospects are the natural result of stimulating an economic boom from last year’s shutdown.”
What are outside economists saying? “The single biggest concern for consumers is now rising inflation, which is backed up by big increases in both of the inflation expectations measures to their highest in 10 years – the one-year ahead measure rose to 4.6%, from 3.4% and the longer-term measure rose to 3.1%, from 2.7%,” wrote Andrew Hunter, senior U.S. economist at Capital Economics.
“Following the relatively disappointing April activity and employment data, this reinforces our fears that rapidly rising wages and prices may be starting to constrain the recovery in real activity,” he added. “But the bigger concern at this stage is that it is becoming increasingly difficult for Fed officials to argue that core inflation will miraculously drop back in line with their 2% target by next year.”
Market reaction: Stocks were moving higher in early morning trading after a selloff earlier in the week. The Dow Jones Industrial Average
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