Dive Brief:
- Consumer confidence ticked down this month as the rising price of gasoline and other goods compelled two out three households to trim spending, the Conference Board said Tuesday, citing a survey.
- The Consumer Confidence Index dipped 0.7 points to 93.1, eroded by a gloomier view among younger and older consumers, the Conference Board said. Optimism rose among consumers aged 35 to 54.
- “Confidence edged downward in May as the inflationary impacts of the war in the Middle East intensified,” Conference Board Chief Economist Dana Peterson said in a statement.
Dive Insight:
Another survey this month by the University of Michigan revealed that consumer sentiment fell to a record low as households bristled at soaring gasoline prices, the University of Michigan said Friday.
Nearly three out of five consumers (57%) spontaneously said that high prices are eroding their finances, an increase of 7 percentage points from April, the university said.
The university focuses more than the Conference Board on consumers’ financial situation, which has worsened during a war-induced surge in prices. The Conference Board looks more closely than the university at the labor market, which has shown signs of firming in recent months.
“Consumer appraisals of current business conditions and the current labor market were moderately less positive compared to last month,” Peterson said.
“This was somewhat offset by modest improvements in consumers’ expectations for business conditions and the labor market six months from now,” she said.
Write-in survey responses from consumers leaned toward pessimism, with references to gas, oil and prices in general increasing for the second straight month, the Conference Board said.
Among the two-third of consumers cutting back on spending, most are buying fewer items and delaying expensive purchases, the Conference Board said. They plan to restrict outlays for clothing, footwear, hobby items, games and toys.
Selective austerity apparently began last month, as retail sales growth slowed to 0.5% from 1.6%, according to the Census Bureau.
Weaker retail sales growth signals emerging “demand destruction from rising prices,” EY said Tuesday in a report, noting sales volumes declined last month in healthcare, autos, clothing, gasoline and furniture.
Consumers increasingly rely on savings and credit, “but these are finite resources, especially with pockets of delinquency risks emerging,” EY said.
Lower- and middle-income households feel a tightening financial squeeze as inflation outpaces wage growth for the first time since April 2023, according to EY.
“The longer the Middle East conflict lasts, the more severe and broad-based inflationary pressures are likely to become,” EY said.
“In the coming months, we anticipate higher fertilizer prices will contribute to higher food price inflation, while higher transportation and production costs, stemming from elevated energy and input costs, are likely to be passed through to goods and services prices,” EY said.
Successive “supply shocks” from the pandemic, high tariffs and the Iran war are gradually slowing economic growth, according to EY.
“Fortunately for the economy, the three “A-pillars” of growth — affluent consumers, AI investment and asset price appreciation — continue to provide a solid but increasingly narrow foundation for growth,” EY said.
Business investment in AI-related equipment and software fueled economic growth at an annualized rate of 1.4 percentage points during the first quarter, well above the 1 percentage point contribution from consumer spending, according to EY.
“The risk is that an economy with a narrow base is more susceptible to headwinds,” EY said.
Gross domestic product growth will probably slow from 2.1% in 2025 to 1.8% this year and 1.9% in 2027, according to EY.
