Consumer confidence in the United States fell to its lowest level in nearly 11 years in early May as inflation fears remained, but consumer spending is still supported by a robust labor market and large reserves, which should keep the economy growing.
According to a survey released by the University of Michigan on Friday, opinion has deteriorated across all demographics, as well as geographical and political affiliations. The survey gives a lot of weight to gas costs and the stock market.
According to AAA, gasoline prices have resumed their upward trend this month, reaching an average record high of $4.432 per gallon on Friday. Fears that the Federal Reserve would have to tighten monetary policy forcefully to bring inflation under control have triggered a huge stock sell-off on Wall Street.
“Just because customers are resentful of rising prices and limited supply doesn’t mean they aren’t still buying,” said Michael Pearce, a senior U.S. economist at Capital Economics in New York. “We expect confidence to rebound as product shortages and prices ease during the rest of the year.”
Early this month, the preliminary consumer mood index from the University of Michigan fell 9.4% to 59.1, the lowest score since August 2011. Reuters polled economists, who predicted the index would drop to 64.
The survey’s indicator of current economic conditions fell 8.4% to 63.6. That was the lowest reading since 2013, and 36% of customers blamed inflation for their dissatisfaction. Its indicator of consumer expectations fell 9.9% to 56.3.
Consumers reported the poorest purchase conditions for long-lasting manufactured items since the poll began tracking the series in 1978.
“As the relationship between expenditure and sentiment is loose, particularly in the short run,” said Scott Hoyt, a senior economist at Moody’s Analytics in West Chester, Pennsylvania.
Despite consumer concerns about rising prices, long-term inflation expectations appeared to be stable.
For the third month in a row, one-year inflation expectations in the survey were at 5.4 percent. For the fourth month in a row, its five-year inflation expectations remained steady at 3.0%.
After a rocky week, Wall Street stocks recovered, but the dollar sank against a basket of currencies. Treasury yields in the US increased.
INFLATION HAS PROBABLY PEAKED.
Despite the fact that inflation is projected to continue high, there is evidence that price pressures have peaked.
Import prices were unexpectedly steady in April, according to a separate Labor Department report, as a drop in the cost of petroleum outweighed hikes in food and other imports. In March, import prices increased by 2.9 percent.
Import prices, excluding taxes, were expected to rise 0.6 percent, according to economists. Import prices increased by 12.0% in the year to April after increasing by 13.0% in the previous 12 months.
Consumer prices rose at the slowest rate in eight months this week, according to government data, while producer prices rose at the slowest rate since September.
Monthly import, consumer, and producer costs are projected to rise in May as oil prices rise. Annual inflation rates are predicted to continue to decline, while they will likely remain above the Fed’s 2% target.
The slowdown is primarily due to last year’s large growth being excluded from the calculations.
The Federal Reserve hiked its policy interest rate by half a percentage point last week, the largest increase in 22 years, and said that it will begin selling bonds next month. In March, the Federal Reserve began hiking interest rates.
After surging 17.3 percent in March, imported fuel costs fell 2.4 percent last month. Petroleum prices fell by 2.9 percent, but imported food costs rose by 0.9 percent. Imported capital goods prices increased by 0.4 percent, matching March’s gain.
Imported consumer items, except motor vehicles, were steady in price. Imported automobiles and parts prices increased by 0.3 percent. Import prices rose 0.4 percent excluding fuel and food. In March, these so-called core import prices increased by 1.3 percent. In April, they climbed 6.9% over the previous year.
Some of the monthly core import price increases have slowed due to the dollar’s strength against the currencies of the US’s biggest trading partners. Since the Fed began hiking interest rates, the greenback has gained around 2.65% on a trade-weighted basis.
Export prices rose 0.6 percent in April after rising 4.1 percent in March, according to the data. Prices for agricultural exports increased by 1.1 percent, a slower pace than the 4.3 percent increase seen in March. Corn, cotton, pork, and nuts all saw higher prices in April, more than offsetting decreased prices for wheat and soybeans.
Non-agricultural export prices increased by 0.5%. In April, export prices grew 18.0 percent year over year. This follows a gain of 18.6 percent in March.