US consumer sentiment index falls sharply despite signs of economic recovery

American consumers are being cautious about spending as interest rates rise.

Recently, the University of Michigan released the US consumer sentiment index for May following a survey, showing that the index had fallen from 77.2 in April to 67.4 in May.

Notably, the May index of 67.4 far exceeded the Dow Jones consensus forecast of 76. Consumer sentiment deteriorated more than analysts had anticipated. In just one month, the index fell 12.7%, compared to a 14.2% increase year-on-year.

The one-year economic outlook rose to 3.5%, up 0.3% from the previous month, reaching its highest level since November 2023. Additionally, the five-year outlook also increased to 3.1%, a mere 0.1% rise, reversing the downward trend of the past few months and also reaching its highest level since November last year.

The sharp decline has raised a series of questions about the economic situation and consumer sentiment, potentially triggering negative market movements.

In an economy, rising inflation is often the result of rapid growth and a significant increase in the amount of money in the economy. This can affect the prices of goods and services, devalue the currency, and impact consumer benefits.

Joanne Hsu, Director of Consumer Surveys and Associate Professor of Research at the University of Michigan's Institute for Social Research, stated: "While there are some positive economic prospects, consumers remain cautious and have negative perceptions on several fronts: inflation, unemployment, and interest rates... are expected to worsen over the next year."

Other indicators in the survey also saw significant declines: The current conditions index fell to 68.8, down more than 10 points, while the expectations measure dropped to 66.5, down 9.5 points. Both indicated monthly declines of more than 12%, although they were higher than a year earlier.

Oren Klachkin, an economist at Nationwide Financial, said: “The reality isn’t always what people think, and we believe the economy remains robust enough to sustain consumer spending. In addition, rising incomes are likely to be a factor driving consumer spending in the near future.”

According to a survey by the University of Michigan, the US consumer price index fell sharply as inflation rose, despite positive signs of economic recovery. (Image: CNBC)

Many major impacts on the market and the economy.

This survey report comes amid a strong stock market recovery and falling, albeit still high, gasoline prices. Most labor market indicators remain stable, although last week's jobless claims reached their highest level since the end of August last year.

Paul Ashworth, chief economist for North America at Capital Economics, said: “By all accounts, the decline in consumer confidence is a significant warning sign about the overall state of the economy. While some geopolitical factors or stock market volatility may have contributed to the decline, they are only part of the picture.”

Amid rising inflation indicators, the Federal Reserve (Fed) has been considering its short-term monetary policy path. They must examine factors such as inflation, economic growth, and unemployment to decide whether to raise, maintain, or lower interest rates.

When consumers are concerned about inflation, they save and cut back on spending, leading to a slowdown in the economy or reduced growth. Jeffrey Roach, chief economist at LPL Financial, said the Fed is walking a tightrope as it balances both the tasks of price stability and growth.

Jeffrey Roach emphasized: “The risk of stagflation is increasing, which could have a major impact on markets and the economy. This, coupled with the impact of the presidential election, is creating uncertainty and anxiety in the markets. The election results could cause volatility in economic and financial policies.”

In addition, the US market is expecting the Fed to begin cutting interest rates in September, after keeping them at their highest levels in over 20 years. However, statements from Fed Chairman Jerome Powell suggest uncertainty and a shift in the outlook.

If inflation rises sharply, the U.S. may have to implement monetary and fiscal policy measures to curb inflation and rebalance the economy. This could include raising interest rates, controlling the budget, and strengthening monetary policy.

Source: https://congthuong.vn/chi-so-tam-ly-nguoi-tieu-dung-my-giam-sau-bat-chap-tin-hieu-phuc-hoi-tu-nen-kinh-te-319551.html