Consumer sentiment continues to drop thanks to U.S. shoppers’ inflation anxiety

The University of Michigan’s consumer sentiment index, released Friday in a preliminary version, dropped to 65.6 this month from a final reading of 69.1 in May. June’s reading is about 30% higher than the bottom reached in June 2022, when inflation peaked at a four-decade high, but is still below levels typically associated with a healthy economy. Consumers’ outlook has generally been gloomy since the pandemic and particularly after inflation first spiked in 2021.

Consumer spending is a crucial driver of growth. Sour sentiment about the economy is also weighing on President Joe Biden’s reelection bid.

The University of Michigan’s index moved higher last winter and spring, reaching a recent peak of 79.4 in March and raising hopes that American shoppers were taking a more optimistic view of the economy as inflation faded. Yet those gains have now all reversed, as inflation remained stubbornly high in the first three months of this year.

Data released this week, however, shows inflation cooled substantially in May, as the cost of gasoline, new cars, and even car insurance fell.

Consumer spending is watched closely at the Federal Reserve and by economists, as it drives most economic activity in the U.S. Consumers spent at a healthy clip in the first three months of the year, propping up an economy that otherwise slowed in the first quarter. Spending did slow in April, after adjusting for inflation, though Americans continue to shell out for travel, restaurants, and concerts and sporting events.