Consumer Sentiment Slid 6.1% to 82.9 in May

Ann Arbor, MI, May 28, 2021-Consumer sentiment slid 6.1% to 82.9 in May, according to final results from the University of Michigan Survey of Consumers.

This represents a 14.7% increase year over year.

“Consumer confidence remained largely unchanged at the reduced level recorded at mid-month,” says Survey of Consumers chief economist Richard Curtin. “It is hardly surprising that the resurgent strength of the economy produced more immediate gains in demand than supply, causing consumers to expect a surge in inflation. Record proportions of consumers reported higher prices across a wide range of discretionary purchases, including homes, vehicles, and household durables - the average change in May vastly exceeds all prior monthly changes (see the chart). The impact of higher prices on discretionary spending will be offset by the more than $2 trillion increase in savings in the past year as well as by improving job prospects - an all-time peak proportion of consumers anticipated declines in the national unemployment rate during the year ahead. While higher inflation will diminish real incomes, the gains in spending will nonetheless be substantial. The key issue is whether the timing of spending decisions will advance due to the expected price increases. At present the growth in inflationary psychology is unlikely, but it cannot be completely dismissed. Early preventative actions are much less costly, but these actions are much more difficult when policy objectives include avoiding uneven distributional impacts across population subgroups. It will require keeping the level of stimulus higher for a longer period than would have seemed prudent in the past. The primary risk of this strategy is an accelerating inflation rate, which also has uneven distributional impacts. Shifting policy language and a small rate increase could douse inflationary psychology; it would be no surprise to consumers, as two-thirds already expect higher interest rates in the year ahead.”