Final Consumer Sentiment Reading for May Elevated But Eases from Prelim

Spontaneous Reference to Tariffs Matches All-Time High Recorded Last July

The Survey of Consumers final reading on consumer sentiment for May came in at an elevated 100.0, slightly missing the consensus forecast. The preliminary reading soared to a 15-year high.

“The late-month decline was due to unfavorable references to tariffs, spontaneously mentioned by 35% of all consumers in the last two weeks of May,” Richard Curtain, chief economist for the Survey of Consumers said.

That’s up from 16% in the first half of May and 15% in April and matches the high recorded last July in response to the initial imposition of tariffs.

Worth noting, the tariffs Mr. Curtain referenced impact China, which President Donald Trump imposed after they backed away from a nearly agreed upon trade deal when Joe Biden entered the race for his party’s nomination.

Late Thursday, the President announced new tariffs on imports from Mexico in response to record-high levels of illegal immigration at the southern border.

The year-ahead inflation expectations jumped to 2.9% in May up from last month’s 2.5%. Year-ahead inflation expectations among those who unfavorably mentioned tariffs was 0.5 percentage points higher than those who made no references to tariffs. Importantly, the gain in inflation expectations was recorded prior to the actual increases in consumer prices due to the most recent hike in tariffs. While higher inflation expectations modestly reduced real income expectations, the largest impact was on buying conditions for appliances and other large household durables, which fell to their lowest level in four years. The combination of higher inflation and a slower pace of spending provide conflicting signals for monetary policy. The divergence will further widen if, as is likely, the trade war escalates. Will the Fed risk higher inflation by lowering interest rates, or risk higher unemployment by raising interest rates? This delimma [sic] comes at a time when consumers have expressed the highest level of confidence since 2002 in the government’s ability to keep both inflation and unemployment at reasonably low levels (see the chart). Consumers now judge economic security more important than a faster pace of growth in their personal incomes or household wealth.

Richard Curtain, Chief Economist for Survey of Consumers

The preliminary reading on consumer sentiment for June will be released on Friday, June 14, 2019 at 10:00 am EST.

Meanwhile, The Conference Board reported earlier this week that consumer confidence shot higher for the second consecutive month, rising 4.9 points from 129.2 in April to 134.1 (1985=100) in May.