In May, consumer sentiment in the US increased for the first time in three months, with Americans expressing hope about their personal finances and a decrease in inflation. However, this optimism was short-lived as the University of Michigan’s consumer sentiment index dropped to 65.6 in June from 69.1 in May, despite being 30% higher than the low point seen in June 2022 when inflation hit a four-decade high. This reading still remains below levels typically associated with a healthy economy. Despite the decline in consumer sentiment, data released this week shows that inflation decreased significantly in May, with gasoline, new cars, and car insurance costs all seeing decreases.
Consumer spending plays a crucial role in driving economic growth and is closely monitored by the Federal Reserve and economists. The University of Michigan’s index had increased during the winter and spring months, reaching a peak of 79.4 in March. This boost generated optimism that American consumers were feeling more positive about the economy as inflation seemed to be easing. However, these gains have now been reversed as inflation has continued to stay high in the first part of this year. Despite the decline in consumer sentiment, data shows that consumer spending was strong in the first quarter of the year, offsetting the overall slowdown in the economy during that time. Although spending did slow in April after accounting for inflation, Americans are still spending money on travel, dining out, concerts, and sports events.
