Hours: Monday - Friday 8:00 am - 5:00 pm

Resources

U.S. consumer sentiment plunges on rising inflation

REAL ECONOMY BLOG | May 10, 2024

Authored by RSM US LLP


The sharp drop in consumer sentiment in May seems more like an overreaction to rising gasoline prices and overall inflation, rather than a reliable indicator for future spending.

Inflation expectations rose sharply to 3.5% from 3.2% for the next 12 months while longer-term expectations inched up to 3.1% from 3.0%. Sentiment among consumers fell to 67.4 in May, the lowest level since December, according to the University of Michigan survey released on Friday.

Inflation expectations rose sharply to 3.5% from 3.2% for the next 12 months while longer-term expectations inched up to 3.1% from 3.0%.

The rebound in inflation in the first three months of the year has soured consumers’ perceptions of the economy and their personal financial situations.

Consumer sentiment

But we believe this reaction is mostly backward-looking and expect it to reverse once inflation subsides in the coming quarters. Gasoline prices have already flattened in April and dropped slightly in May.

Given the strong economic growth expected in the second quarter—projected to be between 3% and 4%, led by consumer spending—we continue to view the soft consumer sentiment data with skepticism.

Inflation expectations

A more nuanced picture of consumer sentiment emerges in the details of the survey. Overall sentiment remains solid among top income earners, who have benefited from a rising stock market that has enhanced the wealth effect. Conversely, lower-income earners have been more sensitive to inflation, as their excess savings built up during the pandemic dwindles to near zero.

Without any major fiscal support this year, we don’t think the gap between the two will go away anytime soon. But if inflation retreats as we expect and the Federal Reserve eases its monetary policy, lower income earners’ sentiment should look much brighter.

Let's Talk!

Call us at (325) 677-6251 or fill out the form below and we'll contact you to discuss your specific situation.

  • Topic Name:
  • Should be Empty:

This article was written by Tuan Nguyen and originally appeared on 2024-05-10.
2022 RSM US LLP. All rights reserved.
https://realeconomy.rsmus.com/u-s-consumer-sentiment-plunges-on-rising-inflation/

RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each is separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/about us for more information regarding RSM US LLP and RSM International. The RSM logo is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.

Condley and Company, LLP is a proud member of the RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.

Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise and technical resources.

For more information on how Condley and Company can assist you, please call (325) 677-6251.

Share This