Consumer optimism is on a severe decline given lingering inflationary pressures, researchers at the University of Michigan found in the final survey for May. File photo by John Angelillo/UPI | License Photo
May 26 (UPI) -- The outlook on the U.S. economy from consumers "plummeted" amid uncertainty over the path of inflation, the University of Michigan's survey showed.
The final index of consumer sentiment for May, published Friday, showed the outlook declined by 7%, which analysts said was similar to the last time the U.S. economy approached its debt limits in 2011.
House Speaker Kevin McCarthy, R-Calif., told reporters late Friday morning that negotiations were moving in the right direction, though it may be a tough weekend of ongoing talks before the country risks defaulting on its debt obligations by Thursday.
Should the United States miss any payments, it would go into default, lead to a spike in inflation and send the global economy into a tailspin.
One outstanding issue would be work entitlements for social support programs, such as Medicaid, which could lead to burdens for lower-income families should payments decrease.
"This month, sentiment fell severely for consumers in the West and those with middle incomes," survey director Joanne Hsu said.
"The year-ahead economic outlook plummeted 17% from last month. Long-run expectations plunged by 13%, as well, indicating that consumers are concerned that any recession to come may cause lasting pain."
Inflation remains entrenched. The Commerce Department reported Friday that personal consumption expenditures, or PCE, increased by 0.4% in April, after a lackluster increase of 0.1% month-on-month to March.
Over the 12-month period ending in April, the PCE price index, the Federal Reserve's preferred gauge of inflation, increased by 0.2% from the prior month to reach 4.4%. The Fed set a 2% target rate for annual inflation.
Analysts at the University of Michigan, however, found that pessimism was waning somewhat given that inflation is nearly half what it was last summer.
The latest data from the Commerce Department showed wages improved month-on-month, meanwhile, and Hsu said most consumers expected their incomes to support their spending habits "for the time being."
Hsu said consumers in general believe inflation over the short-term could be stabilizing.
"Long-run inflation expectations inched up for the second straight month. but remained within the narrow 2.9 to 3.1% range for 21 of the last 22 months," she added.