Briefing at a Glance

  • Consumer confidence fell this month as rising gasoline and other goods prices weighed on households, with two-thirds of families cutting back on spending, according to a survey released Tuesday by The Conference Board.
  • The Consumer Confidence Index declined 0.7 points to 93.1, with younger and older consumers turning more pessimistic, while optimism among those aged 35 to 54 increased.
  • "Confidence dipped slightly in May, as the inflationary impact of the Middle East war intensified," Dana Peterson, chief economist at The Conference Board, said in a statement.

Deep Dive

In a separate survey this month, the University of Michigan found consumer sentiment fell to a historic low, with households frustrated by surging gasoline prices. The university said Friday that nearly three in five consumers, or 57%, spontaneously mentioned high prices eroding their financial situation, up 7 percentage points from April.

The University of Michigan places more emphasis on consumers' financial conditions than The Conference Board, which focuses more on the labor market. The labor market has shown signs of strengthening recently, but consumers' assessments of current business and labor conditions declined compared with last month.

"Consumers' assessments of current business conditions and the labor market were slightly more negative than last month, but expectations for six months ahead improved modestly, partially offsetting the negative impact," Peterson said.

The Conference Board said consumers' responses to open-ended questions leaned pessimistic, with mentions of gasoline, oil, and prices rising for the second consecutive month. Among the two-thirds of consumers cutting spending, most reduced purchase quantities and delayed big-ticket purchases, planning to limit spending on clothing, footwear, hobby items, games, and toys.

Selective austerity appears to have emerged last month, with retail sales growth slowing from 1.6% to 0.5%. EY noted in a report Tuesday that the slowdown in retail sales growth suggests "demand destruction due to rising prices," pointing out that sales volumes for healthcare, autos, clothing, gasoline, and furniture declined last month.

EY said consumers are increasingly relying on savings and credit, "but these resources are limited, especially as default risks have emerged in some areas." EY noted that for the first time since April 2023, inflation has outpaced wage growth, intensifying financial pressure on middle- and low-income households.

EY warned: "The longer the Middle East conflict persists, the more severe and widespread inflationary pressures may become. In the coming months, rising fertilizer prices will push up food inflation, while higher energy and input costs leading to increased transportation and production expenses could be passed on to goods and services prices."

EY believes that successive "supply shocks" from the pandemic, high tariffs, and the Iran war are gradually slowing economic growth. "Fortunately, the three pillars of economic growth—affluent consumers, AI investment, and asset price appreciation—still provide a solid but narrowing foundation for growth," EY said.

According to EY data, in the first quarter, business AI-related equipment and software investment contributed 1.4 percentage points on an annualized basis to economic growth, well above the 1 percentage point from consumer spending. EY warned: "The risk is that an economy with a narrow base is more vulnerable to headwinds."

EY forecasts GDP growth of 2.1% in 2025, slowing to 1.8% this year and 1.9% in 2027.