Consumer confidence in the U.S. economy plunged in May to the lowest level since November, as Americans worried about the potential impact of a government default if Congress fails to raise the debt limit.
The University of Michigan’s preliminary index of consumer sentiment dropped to 57.7 this month from 63.5 in April, well below economists’ expectations. The survey also showed a sharp increase in consumers’ long-term inflation expectations, which rose to 3.2%, the highest level since 2011.
“This report has a bit of a stagflationary feel about it,” said Conrad DeQuadros, senior economic advisor at Brean Capital in New York. “This increase in inflation expectations is likely to add to a spirited discussion about whether to hold or hike again at the June 14 meeting.”
The survey’s director, Joanne Hsu, partly blamed the decline in sentiment on the political standoff over the debt ceiling, which could prevent the government from paying its bills as soon as June. She warned that “if policymakers fail to resolve the debt ceiling crisis, these dismal views over the economy will exacerbate the dire economic consequences of default.”
The Congressional Budget Office said on Friday that the nation faced a “significant risk” of defaulting on payment obligations within the first two weeks of June without a debt ceiling increase. The White House and Republicans in Congress have been at odds over how to raise the $31.4 trillion borrowing limit, with the GOP demanding spending cuts and President Joe Biden seeking a clean bill.
Biden met with a group of bipartisan lawmakers on Tuesday but a meeting scheduled for Friday was canceled, reportedly as staff for both sides were continuing talks.
The drop in consumer sentiment contrasts with other indicators that have shown signs of improvement in the economy, such as job growth, retail sales and manufacturing activity. However, some analysts cautioned against reading too much into the survey, noting that consumer spending has remained resilient despite fluctuations in confidence.
“We’ve seen consumer sentiment sink often since COVID scrambled the economy, but consumer spending has risen and now maintains a healthy level,” said Robert Frick, corporate economist with Navy Federal Credit Union in Vienna, Virginia. “As for inflation, everyone is poor at predicting it long term, including consumers, and inflation expectations have little effect on spending decisions anyway.”
- US consumer sentiment falls to lowest level since 2011 amid debt ceiling worries | CNBC | May, 14, 2023
- Debt ceiling drama hits consumer confidence | The Hill | May, 13, 2023
- Consumer sentiment drops as debt ceiling deadline looms | Fox Business | May, 12, 2023