Consumer confidence fell to a record low between May and June, according to preliminary survey data released Friday by the University of Michigan.
Rising inflation continues to frustrate consumers, who are tired of shelling out more money – and they are becoming increasingly discouraged in the process.
Record gasoline prices helped push the consumer sentiment index down from 58.4 in May to 50.2 in June, the lowest level since the university began collecting data on consumer sentiment in November 1952.
The preliminary reading is comparable to the low reached during the 1980 recession, wrote Joanne Hsu, director of consumer surveys at the university. In May 1980, the sentiment reading reached 51.7, according to historical data.
The June final reading will be released on June 24.
All components of the index fell, Hsu said, noting a 24% drop in the outlook for business conditions for the year ahead and a 20% drop in consumer ratings of their personal finances.
About 46% of consumers surveyed blamed inflation, up from 38% in May, Hsu said.
“This share has only been exceeded once since 1981, during the Great Recession,” she said. “Overall, gasoline prices weighed heavily on consumers, which is not surprising given the 65-cent increase in national gasoline prices from last month.”
Half of consumers mentioned gasoline prices during interviews, she said.
Consumer confidence levels have fallen in recent months amid persistent and nagging inflation as well as broader economic volatility caused by a lingering pandemic and Russia’s invasion of Ukraine.
Despite this, Americans have continued to spend, the job market has remained strong, and unemployment is near a half-century low.
“Consumer spending has long defied swings in consumer sentiment,” said Greg McBride, chief financial analyst at Bankrate. “What we’re likely to see this time around isn’t consumers cutting back on their spending, it’s just them spending differently. It’s an environment where necessities are increasingly eating into spendable dollars from consumers. ‘a household.”
Consumer reaction from here could help or hurt the Federal Reserve’s efforts to contain inflation, PNC senior economist Kurt Rankin wrote in a note.
“Consumers will choose either to continue spending despite rising prices, which will make the Fed’s choices more difficult in the second half of this year, or to reduce their spending in response to rising prices, particularly in when it comes to daily necessities,” he said. “A pullback in spending would slow the economy further on the immediate horizon, but could make the difference in reducing the depth of any potential recession in 2023 by making the Fed’s job a little easier.”
The Fed is expected to raise its benchmark interest rate by at least another 50 basis points at its policymaking meeting next week.
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