US consumer sentiment near 11-year low
US consumer sentiment slumped to its lowest level in nearly 11 years in early May as worries about inflation persisted, but consumer spending remains underpinned by a strong labor market and massive savings, which should keep the economy expanding.
The University of Michigan's survey on Friday showed the deterioration in sentiment was across all demographics, as well as geographical and political affiliation. Gasoline prices and the stock market have a heavy weighting 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 have to aggressively tighten monetary policy to bring down inflation have unleashed a massive stock sell-off on Wall Street.
"Just because consumers resent paying higher prices and are suffering limited availability doesn't mean they aren't still making those purchases," said Michael Pearce, a senior US economist at Capital Economics in New York. "As goods shortages and prices ease over the rest of this year, we expect confidence will bounce back."
The University of Michigan' preliminary consumer sentiment index tumbled 9.4 per cent to 59.1 early this month, the lowest reading since August 2011. Economists polled by Reuters had forecast the index dipping to 64.
The survey's gauge of current economic conditions dropped 8.4 per cent to 63.6. That was the lowest reading since 2013, and 36 per cent of consumers attributed their negative assessment to inflation. Its measure of consumer expectations declined 9.9 per cent to 56.3.
Consumers viewed buying conditions for long-lasting manufactured goods as the worst since the survey started tracking the series in 1978.
"The dip in confidence does not warrant any immediate change to our near-term forecast for consumer spending as the relationship between spending and sentiment is loose, particularly in the short run," said Scott Hoyt, a senior economist at Moody's Analytics in West Chester, Pennsylvania.
Even as consumers stressed about high prices, long-term inflation expectations appeared to be anchored.
The survey's one-year inflation expectations were at 5.4 per cent for the third straight month. Its five-year inflation expectations were unchanged at 3.0 per cent for the fourth month in a row.
Stocks on Wall Street rebounded after a tumultuous week, while the dollar fell against a basket of currencies. US Treasury yields rose.
Though inflation is likely to remain elevated, there are growing signs that price pressures have peaked.
A separate report from the Labour Department showed import prices were unexpectedly flat in April as a decline in the cost of petroleum offset gains in food and other products. Import prices had surged 2.9 per cent in March.
Economists had forecast import prices, which exclude tariffs, would climb 0.6 per cent. In the 12 months through April, import prices rose 12.0 per cent after accelerating 13.0 per cent in the year through March.
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