U.S. consumer confidence experienced a notable decline in May, with the Conference Board's consumer confidence index falling 0.7 points to 93.1. According to reports from Reuters, this represents a decrease from the revised April figure of 93.8, which was previously reported as 92.8. The decline exceeded economists' expectations, as they had forecast the index would drop to 92.0 according to Reuters polling data. The marginal drop contrasted starkly with the University of Michigan's Surveys of Consumers, which showed consumer sentiment plumbing record lows in May. As Reuters reports, the decline was the latest sign of growing dissatisfaction with President Donald Trump's handling of the economy, with Trump winning the 2024 presidential election in large part because of his promise to lower inflation.
The primary driver behind the confidence decline was increased concerns about inflation linked to the war in Iran. As reported by Reuters, the conflict has disrupted shipping in the Strait of Hormuz, straining global supply chains and boosting prices of a range of commodities, including oil and fertilizers. Gasoline prices have risen more than 50% since the war began in late February, with lower-income households being disproportionately impacted. The survey data revealed that references to prices and oil and gas increased in frequency for a second consecutive month, while mentions of war, geopolitics, and conflict remained elevated. Consumers' write-in responses continued to skew toward pessimism, with Dana Peterson, chief economist at the Conference Board, noting that "consumers' underlying concerns about the inflationary impacts of the war in the Middle East on their wallets" are becoming more pronounced. According to Reuters, Trump has faced higher prices first from his sweeping import tariffs and recently from the U.S.-backed war with Iran, challenging his promise to lower inflation.
The latest survey revealed that two-thirds of consumers reported cutting back on spending overall due to rising prices, with most scaling back by buying fewer items and delaying expensive purchases. As Reuters reports, Heather Long, chief economist at Navy Federal Credit Union, noted that "Americans are upset about high prices and trying to stretch every dollar, but they aren't as gloomy as they were during the Great Recession, the COVID recession or just after 'Liberation Day' last year." The Conference Board added special questions to its survey this month, finding that many consumers are also planning to economize on clothes, shoes, hobby items, and toys and games. Inflation jumped to 3.8% in April, the highest in three years and far above the Federal Reserve's 2% target. According to Reuters, the higher prices are reducing Americans' average inflation-adjusted incomes, with average hourly earnings, adjusted for price changes, shrank in April from a year earlier for the first time in three years. 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.
Despite the overall decline, there were mixed signals in households' perceptions of the labor market. As reported by Reuters, the share of households viewing jobs as "plentiful" dropped to 25.5%, the lowest in three years, while the share reporting that jobs were "hard to get" hit a seven-month low at 18.6%, the smallest percentage since October. The survey's labor market differential narrowed to 6.9 from 7.5 last month, though consumers expected more jobs over the next six months. The findings reflect the "low-hire, low-fire" job market that has made it harder for those out of work to obtain new jobs. Consumer spending has largely held up, driven by larger tax refunds and households tapping into savings, but inflation has outpaced wage growth for the first time in three years. The Conference Board noted that consumers planning to increase spending on services over the next six months shifted from "yes" and "maybe" to "no" responses, with plans to buy big-ticket items also declining. According to Reuters, the labor market has a big influence on the index, while the University of Michigan survey is more sensitive to gasoline prices.
The decline in consumer confidence reflects growing concerns about the economic impact of geopolitical tensions on American households, particularly as Trump won the 2024 presidential election in large part because of his promise to lower inflation. A Reuters/Ipsos survey showed Trump's presidential approval rating fell to nearly its lowest level since he returned to the White House in January 2025. The darkening mood poses challenges for Trump's Republican party as it seeks to retain control of the U.S. Congress in the midterm elections in November. Despite soaring gasoline prices, more consumers planned to go on vacation over the next six months and drive to their destinations, though economists cautioned that rising gasoline prices could pull spending from other goods and services. As Reuters reports, the darkening mood poses a challenge for Trump's Republican party as it seeks to retain control of the U.S. Congress in the midterm elections in November. Some economists argue that the gap between consumer confidence and economic fundamentals reflects inequality in a "K-shaped" economy, with higher-income Americans benefitting from rising stock prices and still spending while lower-income households struggle.
