The US Consumer Confidence Index has fallen to the second worst on record! One-year inflation expectations have surged to 7.3%

A survey released by the University of Michigan on Friday showed that US households' pessimism about the economic outlook worsened further under the impact of Trump's reckless trade policies.

The data indicated that the preliminary reading of the US consumer confidence index for May was only 50.8, marking the fifth consecutive month of decline. The index's final reading for April was 52.2, and economists had previously expected the confidence index to rebound to 53.5 in May.

The latest figure also represented the second-worst level on record. The US consumer confidence index hit a historic low of 50 in June 2022, when runaway inflation exacerbated fears of an economic recession.

(Source: University of Michigan)

As background, the University of Michigan has been tracking US consumers' confidence in the economy since 1952, experiencing 12 recessions, several wars, and multiple inflation cycles. It has been proven that the impact of a "Trump vs. the World" trade war surpasses all these factors.

The survey also showed that US consumers' inflation expectations have moved in an unfavorable direction.The one-year inflation expectation surged further to 7.3% from 6.5% the previous month, reaching the highest level since 1981, while the long-term inflation expectation also rose from 4.4% to 4.6%, hitting a new high since 1991.

US Fed officials have repeatedly warned that anchoring inflation expectations near the 2% target level is a top priority for the central bank's policy operations.

For US consumers, the economic uncertainty caused by trade conflicts is the core reason for their lack of confidence. Joanne Hsu, director of consumer surveys at the University of Michigan, said that three-quarters of consumers spontaneously mentioned tariffs in the survey, up from nearly 60% in April, with uncertainty about trade policies continuing to dominate consumers' views of the economy.

It is worth noting that although most of the survey was conducted before the US-China talks in Geneva, even factoring in the tariff suspension, the actual US tariffs are still at their highest levels in decades. Economists generally believe that tariffs will lead to short-term price increases, but the longer-term economic impact remains difficult to predict clearly. The final reading of the May consumer confidence index will be released on May 30, and the market will closely watch whether the outcome of the Geneva talks will boost confidence.

In her report on Friday, Hsu said that many survey indicators did improve as tariffs on goods imported from China declined, but these preliminary, modest rebounds were not enough to change the overall situation—consumers remained pessimistic about the economy.

As a reflection of the impact of tariff policies on US consumers, US retail giant Walmart announced this Thursday that it had already started raising prices due to tariffs and would further increase prices in June and July when US families prepare for the back-to-school season.

A survey released on Friday also showed that, unlike during the pandemic years in previous years, the prosperity of the US labour market is also impacting consumers' financial strength.

(US consumers are increasingly worried about losing their jobs, source: University of Michigan)

Hsu pointed out that consumers are very concerned about the weakening of the labour market, and an increasing number of people have said that their incomes have been affected, which undoubtedly exposes cracks in consumer resilience.