U.S. consumer sentiment hits new lows amid inflation and war

American consumers have been pessimistic for so long that now economists are wondering when — or even if — households will ever feel financially better off.

The University of Michigan Surveys of Consumers, a closely watched bellwether, hit all-time lows in May, according to a preliminary reading released last week. That is just one of several consumer opinion surveys showing Americans have never regained confidence in the U.S. economy since the Covid pandemic struck more than six years ago.

Economists told CNBC that consumers remain scarred from years of rapid price increases, even as the annual inflation rate cools. On top of that, Americans are worn out by a salvo of economic disruptions — from Covid to wars to President Donald Trump’s tariffs — that have defined the current decade.

“It’s a series of shocks,” said Yelena Shulyatyeva, senior economist at the Conference Board, which conducts another popular gauge of economic confidence. “Consumers don’t get a break.”

Price level pain

Economists and monetary policymakers typically track the rate of inflation over a 12-month time frame. By that measure, price growth is closer to the Federal Reserve’s target of 2% than to the four-decade highs seen during the pandemic.

But shoppers have focused on the cumulative change in prices over the past several years. From that vantage point, Cleveland Fed President Beth Hammack told CNBC, there’s been about a decade’s worth of inflation in half the time. 

“People are starting to hear that inflation is going down, but their box of cereal is still really expensive,” said Kyla Scanlon, an economic commentator known for coining the term “vibecession.”

“That feels really, really bad,” Scanlon said.

High prices have caused most of the decline in consumer sentiment between 2019 and 2026, according to a data analysis from PNC Financial Services. Sticker shock also explains why a model of economic conditions stopped moving in line with consumer sentiment over recent years, the bank’s analysis said.

Consumers are thinking more about the role of inflation in their lives. The share of respondents to Michigan’s survey who said they heard negative news about price growth or blamed that for their sour outlooks spiked after the pandemic began in 2020.

Google searches for the term “inflation” hit all-time highs earlier this year.

“No one cared about inflation until it became a problem,” said Brian LeBlanc, PNC’s senior economist. “Now, it’s something that everybody in the country is thinking about.”

One shock after another

There’s another reason economists believe confidence hasn’t rebounded: Consumers don’t have enough time to recover from one economic jolt before another raises its head.

“I can’t think of a period where you’ve had shocks like these,” said Eric Winograd, an alumnus of the New York Federal Reserve Bank who is now the chief economist at asset manager AllianceBernstein. “I’m not saying that these are the biggest in magnitude, but to have this many sequential events is extremely unusual.”

For sentiment to recover, U.S. consumers would need to see “positive” and “stable” economic conditions for several quarters, Georgetown University finance professor Francesco D’Acunto said. Instead of that, as geopolitical conflicts break out and as Trump continues his push for higher tariffs on trade partners, consumers have been getting “the opposite,” D’Acunto said.

The plunge in sentiment mirrors trends in reported happiness and trust in public institutions seen this decade.

“Consumer sentiment isn’t the only thing that really breaks around the pandemic,” said Joanne Hsu, the director of Michigan’s survey.

Open wallets

But despite what they tell pollsters, consumers, broadly speaking, have continued to open their wallets with abandon. Uber and Walt Disney last week reported strong customer spending, defying fears that shoppers would tighten their purse strings in response to price increases.

“The traditional correlation between sentiment and spending has largely broken down,” said Gregory Daco, chief economist at consulting firm EY-Parthenon. “We have to depart a little bit from the traditional analysis of these gauges because of the unique circumstances that we’re currently living through.”

As a result, AllianceBernstein’s Winograd said investors looking for a pulse check on consumers should monitor the direction of confidence indexes rather than pre-pandemic comparisons. Consumer opinion is still a low-tier economic data point for traders making investment decisions, he said.

The S&P 500 reached an all-time high on the same day last week that Michigan released its record-low consumer sentiment reading. The benchmark stock index has more than doubled, surging roughly 130%, since the start of 2020, while Michigan’s sentiment gauge has been cut in half, tumbling 52%.

“If this is the new normal, then this is the new normal,” Winograd said. “The question is: Are things getting better or worse?”

A resilient consumer

In the near-term, sentiment is unlikely to improve as oil prices stay above $100 a barrel in the wake of the Iran war, several economists told CNBC.

The national average price for a gallon of gasoline soared past $4, the level at which a 2022 AAA survey found that a majority of Americans implement lifestyle changes. Gasbuddy, a price tracking platform, said its daily active user base nearly doubled in March as the war ramped up.

Whirlpool said last week that it experienced a “recession-level” decline in appliance demand due to cratering consumer confidence owing to the Middle East conflict. McDonald’s CEO Chris Kempczinski warned analysts that customer spending could take a hit as rising gas prices pressure pocketbooks.

What happens next in the job market can also dictate consumers’ feelings and behavior, Winograd said. Federal government data released last week showed the U.S. job market expanded more than economists expected in April, while still pointing to a “low-hire, low-fire” environment.

But even with these uncertainties and their gloomy views, American consumers — responsible for roughly two-thirds of all economic activity — are unlikely to crack, Winograd said.

“It’s a foolish man who bets against the U.S. consumer,” the economist said. “The base case has to be that the consumer continues to plug along.”