US consumer sentiment drops to 6-month low on inflation, unemployment fears

abcnews.go.com:

Consumer sentiment fell sharply in May to the lowest level in six months as Americans cited concerns about stubbornly high inflation and interest rates and fears that unemployment could rise

WASHINGTON — U.S. consumer sentiment fell sharply in May to the lowest level in six months as Americans cited stubbornly high inflation and interest rates, as well as fears that unemployment could rise.

The University of Michigan’s consumer sentiment index, released Friday in a preliminary version, dropped to 67.4 this month from a final reading of 77.2 in April. May's reading is still about 14% higher than a year ago. Consumers' outlook has generally been gloomy since the pandemic and particularly after inflation first spiked in 2021.

Consumer spending is a crucial driver of growth. Sour sentiment about the economy is also weighing on President Joe Biden's reelection bid.

Still, consumer confidence surveys have not always been reliable guides to actual spending, economists note.

“Perceptions don’t always match reality and we think the fundamental backdrop remains strong enough to keep consumers spending,” said Oren Klachkin, an economist at Nationwide Financial, in a research note. “Rising incomes offer a healthy offset and will prevent consumer outlays from retrenching on a sustained basis.”

In the first three months of this year, consumer spending stayed strong even as growth slowed, likely fueled largely by upper-income earners with significant wealth gains in their homes and stock portfolios. The unemployment rate is at a historically low 3.9%, which has forced many companies to offer higher pay to find and keep workers.

Yet big retailers have begun to sense more caution from customers, particularly those with lower