WASHINGTON (AP) — Consumer confidence in the U.S. took a modest dip this month, with persistently high gas prices and inflation maintaining pressure on household budgets, contrasting sharply with the buoyant stock market, which remains close to all-time highs.
The Conference Board reported a 0.7-point decrease in its consumer confidence index, bringing it down to 93.1 in May. This marks the first decline following a three-month upward trend. Although this index has not plummeted as drastically as other consumer sentiment measures this year, it remains relatively low compared to pre-pandemic levels, where it consistently hit 130.
Another measure of consumer sentiment, published by the University of Michigan last week, revealed a historic low for the month. The escalating costs of gas and groceries have intensified inflation, outpacing average wage growth and diminishing the purchasing power of many Americans. Dissatisfaction with President Trump’s economic strategies is evident in polls, which could spell trouble for Republicans as the midterm elections approach.
Despite the economy’s continued expansion and a persistently low unemployment rate, consumer sentiment remains largely pessimistic. Some economists suggest this disparity highlights a “K-shaped” recovery, where wealthier Americans benefit from rising stock markets and maintain their spending levels, while lower-income households find themselves struggling.
The consumer confidence report released on Tuesday noted an increase in confidence among households earning $100,000 or more, while confidence declined among other income groups.
“The prospect of higher prices and faster inflation continues to loom over confidence readings with many households taking a more cautious approach to purchases this year,” Ben Ayers, Nationwide senior economist, said.
There were some positive signs, Ayers noted: Americans’ expectations for growth six months in the future improved, potentially a sign they expect the Iran war to be over by then.
Still, Americans’ outlook on the job market worsened slightly. The proportion of respondents who said jobs are “plentiful” dropped to 25.5%, the lowest in three years. At the same time, just 18.6% said jobs were “hard to get,” the smallest percentage since October. The findings reflect the “low-hire, low-fire” job market that has made it harder for those out of work to obtain new jobs.
Gas prices have soared to a nationwide average of $4.49 a gallon from $2.98 just before the war began at the end of February, and have been at or above $4.50 a gallon for nearly all of May.
This month, the Conference Board added special questions to its survey, which found rising prices have caused most Americans to change their spending habits. Two-thirds of respondents said they are cutting back spending in response to the increases, with most of those reducing overall purchases and delaying more expensive acquisitions.
Many consumers are also planning to economize on clothes, shoes, hobby items, and toys and games, the survey found.
Inflation jumped to 3.8% in April, the highest in three years and far above the Federal Reserve’s 2% target. In addition to more expensive gas, grocery prices have also started rising more quickly, likely driven by higher shipping costs. Beef prices have also risen sharply, as drought and other factors have reduced cattle herds.
The higher prices are reducing Americans’ average inflation-adjusted incomes. Average hourly earnings, adjusted for price changes, shrank in April from a year earlier for the first time in three years.
Other data also suggests consumers have grown more cautious amid rising prices. Adjusted for inflation, retail sales actually declined in April, after a solid increase in March.
And the University of Michigan’s consumer sentiment index fell to a record-low 44.8 in May, its third straight decline, as a majority of respondents said rising prices were hurting their personal finances.