- Consumer sentiment index drops 9.4% to 59.1 in May
- Import prices unchanged in April, up 12.0% year on year
WASHINGTON, May 13 (Reuters) – U.S. consumer confidence fell to its lowest level in nearly 11 years in early May as inflation concerns persisted, but household spending remains supported by a strong labor market and massive savings, which should keep the economy growing.
Friday’s University of Michigan survey showed that the deterioration in sentiment, which some economists say pushed it into recessionary territory, spanned all demographics, as well as geographic and political affiliation. Gasoline prices and the stock market feature prominently in the survey.
Gasoline prices resumed their upward trend this month, setting an average record high of $4.432 per gallon on Friday, according to AAA. Fears that the Federal Reserve will need to tighten monetary policy aggressively to bring down inflation sparked a sell-off in stocks on Wall Street.
Join now for FREE unlimited access to Reuters.com
“But confidence has been a poor guide to consumption growth in recent years, so we can’t interpret this signal too much,” said Michael Pearce, senior US economist at Capital Economics in New York. “Just because consumers don’t like paying higher prices and suffer from limited availability doesn’t mean they’re not making those purchases anymore.”
The University of Michigan’s preliminary consumer sentiment index fell 9.4% to 59.1 earlier this month, the lowest since August 2011. Economists polled by Reuters had expected the index to fall to 64. The sharp drop contrasts sharply with the Conference Board’s consumer confidence survey. , whose index remains well above the lows of the COVID-19 pandemic.
The Conference Board survey puts more emphasis on the labor market, which is generating jobs at a steady pace. Wages are also rising as employers scramble to fill a record 11.5 million job openings at the end of March.
The University of Michigan’s survey indicator of current economic conditions fell 8.4% to 63.6. It was the lowest reading since 2013, and 36% of consumers attributed their negative rating to inflation. Its measure of consumer expectations fell 9.9% to 56.3.
Consumers rated conditions for buying durable manufactured goods as the worst since the survey began tracking the series in 1978. Economists were unfazed, noting that consumers were sitting on at least $2 trillion in savings surplus accumulated during the pandemic.
“But consumer spending continues to rise, and with high savings, low household debt and a strong labor market, that spending is expected to continue until the economy falters,” said Robert Frick, business economist at the Navy Federal Credit Union in Vienna, Virginia. Even as consumers stressed by high prices, long-term inflation expectations seemed well anchored. The survey’s one-year inflation expectation was 5.4% for the third consecutive month. Its five-year inflation expectations remained unchanged at 3.0% for the fourth consecutive month.
Wall Street stocks rebounded after a tumultuous week as the dollar fell against a basket of currencies. US Treasury yields rose.
INFLATION HAS PROBABLY REACHED
There were fears that high inflation and the Fed’s interest rate hikes, which began in March, could sharply slow growth or even tip the economy into recession. The economy contracted in the first quarter under the weight of a record trade deficit, but domestic demand remained solid.
Although inflation is expected to remain elevated, there are increasing signs that price pressures have peaked.
A separate report from the Labor Department showed import prices were surprisingly flat in April, as lower oil costs offset gains in food and other commodities. Import prices jumped 2.9% in March.
Economists had forecast that import prices, which exclude customs duties, would increase by 0.6%. In the 12 months to April, import prices rose 12.0% after accelerating 13.0% in the year to March.
Government data this week showed monthly consumer prices rose at the slowest pace in eight months, while the gain in producer prices was the smallest since last September.
With oil prices rising in May, monthly import, consumer and producer prices are expected to pick up.
Annual inflation rates should continue to decline slightly, although they will likely remain above the Fed’s 2% target.
The deceleration is mainly the result of last year’s sharp increases that were removed from the calculation. The U.S. central bank last week raised its benchmark rate by half a percentage point, the biggest hike in 22 years, and said it would start cutting its bond holdings next month.
Imported fuel prices fell 2.4% last month after climbing 17.3% in March. Oil prices fell 2.9%, while the cost of imported food rose 0.9%. Prices for imported capital goods rose 0.4%.
The cost of imported consumer goods excluding motor vehicles remained unchanged. Prices for imported motor vehicles and their parts rose 0.3%. Excluding fuel and food, import prices rose 0.4%. These so-called core import prices rose 1.3% in March. They rose 6.9% year on year in April.
Part of the slowdown in monthly core import price gains reflects the strength of the dollar against the currencies of major US trading partners. The greenback has gained about 2.65% on a weighted basis since the Fed started raising interest rates.
“Past appreciation of the U.S. dollar will also put downward pressure on import prices,” said Ryan Sweet, senior economist at Moody’s Analytics in West Chester, Pennsylvania.
Join now for FREE unlimited access to Reuters.com
Reporting by Lucia Mutikani Editing by Paul Simao and Chizu Nomiyama
Our standards: The Thomson Reuters Trust Principles.