WASHINGTON (AP) — U.S. consumer sentiment declined slightly in May, marking the fifth consecutive month of a downward trend, surprising economists as Americans grow increasingly concerned about inflation due to President Donald Trump’s trade policies.
The preliminary reading of the University of Michigan’s consumer sentiment index dropped 2.7% month-over-month to 50.8, one of the lowest levels in its nearly 75-year history. This decline reflects growing unease among consumers regarding the economic impact of increased import duties imposed by the Trump administration, which could slow growth and raise prices. Although the White House has recently softened some of its more severe trade measures, average tariffs remain historically high.
Consumer sentiment is sharply divided along political lines, raising questions about the survey’s accuracy. The University of Michigan transitioned last year from a mixed method of online and phone surveys to exclusively online responses, a change that some analysts believe may have introduced a more pessimistic bias.
For Democrats, the sentiment index fell to 33.9 this month, the lowest since partisan data collection began in 1980. Meanwhile, for Republicans, it stands at 84.2, though this is the lowest since Trump’s election.
Despite tensions, the U.S. and China reached an agreement to reduce tariffs, with U.S. duties lowered to 30% and Chinese duties on U.S. exports cut to 10%. However, Walmart has announced price increases in response to the tariffs, which could further strain American households already grappling with post-pandemic inflation.
Consumers are increasingly worried about rising inflation, expecting it to reach 7.3% over the next 12 months, the highest since 1981. Over five years, they foresee inflation at 4.6%, up from 4.4% last month. While these expectations often exceed actual inflation rates, they are closely monitored by economists and the Federal Reserve because they can influence behavior that drives inflation.
Federal Reserve Chair Jerome Powell noted that the Michigan inflation expectation numbers are an ‘outlier,’ with market-based measures of future inflation remaining relatively stable. Nonetheless, the upward trend in inflation expectations could reduce the likelihood of the Fed cutting interest rates soon.
— new from AP News