Consumer sentiment was unchanged from April, ending four straight months of declines. The Michigan Consumer Sentiment Index remained at 52.2 in May, the fourth lowest reading on record. The latest reading was higher than the 50.8 preliminary reading from earlier in the month, highlighting increased optimism during the latter half of the month. Consumer sentiment has fallen by 24.5% (16.9 points) compared to a year ago.
The Michigan Consumer Sentiment Index is a monthly survey of consumer confidence levels in the U.S. with regards to the economy, personal finances, business conditions, and buying conditions, conducted by the University of Michigan. There are two reports released each month; a preliminary report released mid-month and a final report released at the end of the month.
Joanne Hsu, the director of surveys, made the following comments:
Consumer sentiment was unchanged from April, ending four consecutive months of plunging declines. Sentiment had ebbed at the preliminary reading for May but turned a corner in the latter half of the month following the temporary pause on some tariffs on China goods. Expected business conditions improved after mid-month, likely a consequence of the trade policy announcement. However, these positive changes were offset by declines in current personal finances stemming from stagnating incomes throughout May. Overall, consumers see the outlook for the economy as no worse than last month, but they remained quite worried about the future.
See the chart below for a long-term perspective on this widely watched indicator. We've highlighted the index's value at the start of each recession and included a callout to the most recent 12 months. At 52.2, the current level is below the index's value at the start of all six recessions since its inception.
To put today’s report in historical context, consumer sentiment is currently 38.2% below its average reading of 84.5 (arithmetic mean) and 37.4% below its geometric mean of 83.3, based on data dating back to 1978. The current index level is at the 1st percentile of the 569 monthly data points in this series.
This indicator is somewhat volatile, with an average monthly change of 3.1 points. The latest data shows a 0.0-point change from the previous month. To visualize the volatility, here’s a chart with monthly data and a three-month moving average. The bottom half of the chart includes real GDP, which allows us to evaluate the correlation between the Michigan Consumer Sentiment Index and the broader economy.
Each month, the survey results highlight sentiment within each political party. To provide additional context, I’ve included a chart that shows the presidencies over our timeframe. As you can see, sentiment has fluctuated both positively and negatively under both Republican and Democratic administrations.
Michigan Consumer Sentiment Index: Components
The Michigan Consumer Sentiment Index consists of two sub-indexes: the Current Economic Conditions Index (CECI) and the Consumer Expectations Index (CEI). The CECI reflects consumers' views of their current financial situation and the overall economy, while the CEI gauges their outlook for the future.
In May, the CECI dropped to 58.9, the lowest reading since November 2022. This represents an 1.5% decline from the previous month and a 15.4% decline from a year ago. This reading was above the forecast of 57.6.
Meanwhile, the CEI inched up to 47.9. This represents a 1.3% increase from the prior month and a 30.4% drop from one year ago. This reading was above the forecast of 46.5.
Michigan Consumer Sentiment Index: Inflation Expectations
Year-ahead inflation expectations were little changed at 6.6%, inching up from 6.5% last month. This is the smallest increase since the election and marks the end of a four-month streak of extremely large jumps in short-run expectations. Notably, long-run inflation expectations fell back from 4.4% in April to 4.2% in May. This is the first decline seen since December 2024 and ends an unprecedented four-month sequence of increases. Given that consumers generally expect tariffs to pass through to consumer prices, it is no surprise that trade policy has influenced consumers’ views of the economy. In contrast, despite the many headlines about the tax and spending bill that is moving through Congress, the bill does not appear to be salient to consumers at this time.
Other Sentiment Indicators
For an additional perspective on consumer attitudes, see the most recent Conference Board's Consumer Confidence Index. Both indexes gauge consumer attitudes toward the current and future strength of the economy. However, the Consumer Confidence Index is more influenced by employment and labor market conditions while the Michigan Sentiment Index is more focused on household finances and the impact of inflation.
The Conference Board index is the more volatile of the two, but the broad pattern and general trends have been remarkably similar to the Michigan index.
And finally, the prevailing mood of the Michigan survey is also similar to the mood of small business owners, as captured by the NFIB business optimism Index (monthly update here).
The next update to this report will be published on June 13th.
ETFs associated with sentiment include: Consumer Discretionary Select Sector SPDR Fund (XLY).
Read more updates by Jen Nash
