U.S. consumer confidence fell to a 3-month low in May as soaring prices and rising interest rates fed into a cooling of buying intentions for goods like cars and houses, and as consumers expressed worry about the future pace of inflation.
“Consumer confidence dipped slightly in May, after rising modestly in April,” Lynn Franco, senior director of economic indicators at The Conference Board, said in a statement.
The Present Situation Index, which is a gauge of how consumers view current business and jobs market conditions, fell from 152.9 last month to 149.6.
That drop was entirely driven by consumers' perceived deterioration in labor market conditions, while the business component of the metric edged up.
"Views of current business conditions—which tend to move ahead of trends in jobs—improved," Franco said. "Overall, the Present Situation Index remains at strong levels, suggesting growth did not contract further in Q2."
The Conference Board sentiment survey also showed a deterioration in consumers' confidence in the economy. The Expectations Index, which is a forward-looking measure, dropped from 79.0 last month to 77.5 in May, suggesting consumers don't expect the economy to pick up steam in the months ahead.
Soaring inflation, which has been running at a 40-year high, led to a decline in spending plans on more expensive goods and services, according to Franco.
"Purchasing intentions for cars, homes, major appliances, and more all cooled—likely a reflection of rising interest rates and consumers pivoting from big-ticket items to spending on services," Franco said, with high prices also having a cooling impact on vacation spending plans.
"Indeed, inflation remains top of mind for consumers, with their inflation expectations in May virtually unchanged from April’s elevated levels," Franco added.
Expectations for inflation to remain elevated dovetail with a recent study from the New York Federal Reserve, which found that American consumers expect no relief from high prices in the near-term, believing inflation will stay high for the next 12 months before finally losing steam over a 3-year horizon.
"Looking ahead, expect surging prices and additional interest rate hikes to pose continued downside risks to consumer spending this year,” Franco said.
Consumer spending is a key driver of the U.S. economy, accounting for around two-thirds of gross domestic product (GDP).
The Conference Board survey also showed that consumers were somewhat less pessimistic about the short-term labor market outlook and mixed about their short-term financial prospects.