Consumer Sentiment: Sharp Drop

Bottom Line:  The University of Michigan's consumer sentiment survey showed a surprisingly sharp decline in early May. The future expectation index hit its lowest level since the initial inflation spike early last year, and the current conditions index hit its lowest level of the year. Year-ahead inflation expectations edged down a tenth but were still elevated at 4.5%, while 5-year inflation expectations jumped to 3.2%. News about the impending debt ceiling was the source of consumers' worries about the economy. And unlike many in the markets, consumers fear the impact on the economy could be lasting.  Overall, consumers continue to see reasons for worry and uncertainty. They are still not convinced that inflation will move lower, and high interest rates are making large purchases more expensive. Now they are concerned that fiscal policymakers will throw the economy into recession.

The University of Michigan's Consumer Sentiment Index FELL -5.8  to 57.7, BELOW the 3-month average of 61.07 and -1.2% BELOW the year-ago level. The Current Conditions Index FELL -3.7  to 64.5, BELOW the 3-month average of 66.33 but 1.9% ABOVE the year-ago level. The Future Expectations Index FELL -7.1  to 53.4, BELOW the 3-month average of 57.7 and -3.3% BELOW the year-ago level. Year-ahead inflation expectations FELL -0.1  to 4.5, ABOVE the 3-month average of 4.23 but -0.8 BELOW the year-ago level. Long-term (5 years) inflation expectations ROSE 0.2  to 3.2, ABOVE the 3-month average of 3.03 and 0.2 ABOVE the year-ago level.