The University of Michigan's Index shows a 13% drop in consumer sentiment, driven by rising concerns over inflation and economic uncertainty.
Recent data has indicated that pessimism among U.S. citizens regarding the state of the American economy has increased in May, with heightened concerns related to inflation, interest rates, and unemployment. The University of Michigan's May "Index of Consumer Sentiment" revealed a significant 13 percent decline, marking the lowest sentiment reading in approximately six months.
The survey highlighted a "broad consensus across consumers" irrespective of their age, education, or income, with many feeling downbeat about the economy. "While consumers had been reserving judgment for the past few months, they now perceive negative developments on a number of dimensions," the survey noted, pointing out the growing concerns over inflation, unemployment, and interest rates potentially moving in an unfavorable direction.
The expectations of year-ahead inflation rose from 3.2 to 3.5 percent, while long-run inflation expectations saw a marginal increase from 3 to 3.1 percent. Both figures are above the pre-pandemic two-year range. Notably, annual inflation has consistently been above the Federal Reserve's target rate of two percent since April 2021, peaking at 9.1 percent in June 2022 before declining to the current rate of 3.4 percent as of April 2024. Under the Biden administration, the Consumer Price Index (CPI) has seen an increase of over 19 percent.
High inflation has had a tangible impact on the retirement plans of Americans. An April study by Northwestern Mutual found that Americans now estimate they need $1.46 million to retire comfortably, a figure that has surged by over 50 percent since COVID began. In contrast, in 2020, the expected amount was $951,000. The average U.S. adult's retirement savings have also decreased by more than $10,000 from 2021, now standing at $88,400.
Aditi Javeri Gokhale of Northwestern Mutual stressed the impact of inflation, stating, "Inflation is expanding our expectations for retirement savings and putting the pressure on to plan and stay disciplined."
A Credit Karma survey from May 21 echoed these concerns, with 80 percent of respondents experiencing a "cost of living creep." Among these individuals, 66 percent said this was an obstacle to achieving financial goals, 55 percent have taken on debts, 36 percent were unable to save for retirement, and 27 percent could not afford everyday expenses.
Inflation has become a pivotal issue for the upcoming elections. A Gallup poll from May 2 recorded that 41 percent of Americans listed the high cost of living as their top concern, a figure that has been steadily increasing in recent years. Former President Donald Trump commented on the issue, highlighting the rampant inflation and criticizing President Biden's handling of the economy.
