Americans’ optimism about the economy is at a near-record low

By Alicia Wallace, CNN

(CNN) — Americans’ feelings about the US economy remain in the doldrums: Consumer sentiment continued its freefall this month, settling in at a near-record low.

The University of Michigan’s closely watched consumer sentiment index fell 2.7% to a preliminary reading of 50.8 for May, dropping further from April’s reading of 52.2.

May’s preliminary reading, the second-lowest on record, landed a touch above the all-time low of 50 notched in June 2022, when inflation was at a 41-year high.

Since 1952, when the university started tracking how Americans felt about the economy, there have been nearly a dozen recessions, several oil price shocks, a few wars, a couple of inflationary episodes, a major financial crisis and a global pandemic.

Turns out, a massive trade war nearly trumps all.

President Donald Trump’s sweeping and steep tariffs and other policy shifts have stoked recession fears and sent sentiment readings south every month this year. The university’s index of consumer sentiment is down almost 30% since January, according to Friday’s report.

“It’s very clear that consumers are bracing for the uncertainty and instability of tariff policy,” Joanne Hsu, director of the University of Michigan’s Surveys of Consumers, said Friday during an interview on Bloomberg TV.

Three-quarters of survey respondents spontaneously mentioned tariffs, up from 60% in April.

And consumers, across both major parties, wholly expect tariffs to be painfully pricey: Year-ahead inflation expectations leapt to 7.3% from 6.5%.

Economists expected that sentiment could improve in May, forecasting a reading of 55, according to FactSet estimates.

There have been positive developments in Trump’s trade war to start the month, notably an unexpected détente and de-escalation in tariffs between the US and China, announced in full on May 12. The survey period for the preliminary report ended May 13.

Many survey measures did show signs of improvement following the 90-day reduction in China’s import tariffs from 145% to 30%, Hsu noted in Friday’s report.

“But these initial upticks were too small to alter the overall picture — consumers continue to express somber views about the economy,” she said in the report.

However, May’s initial reading is the second-lowest on record, wedging itself between June 2022’s all-time low of 50 and the slight improvement to 51.5 seen in July 2022.

Nearly three years ago, inflation was raging; however, the labor market was strong, and consumers has the firepower to keep spending.

That may not be the case this time around, Hsu said during the Bloomberg TV interview.

“Consumers are really worried that labor markets are going to weaken” she said, adding that a growing share reported their incomes have already been dinged.

“This is definitely a concerning crack in the resilience of consumers,” she added.

This story is developing and will be updated.

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