After a spurt of optimism, Americans are feeling a little more glum about the economy — again.
Consumer sentiment, a gauge of Americans’ economic perceptions, is at a six-month low, according to a closely watched index by the University of Michigan. The measure notched its biggest drop since 2021, reflecting the persistent tug of inflation on household budgets and fueling fears that rising prices, unemployment and interest rates could all worsen in the coming months.
That pessimism is altering consumers’ spending habits. McDonald’s, Home Depot, Under Armour and Starbucks all recently reported disappointing earnings, as people cut back on fast food, kitchen renovations, sneakers and afternoon lattes. Retail sales were flat in April after decent pickups in February and March. Meanwhile, Walmart reported a strong first quarter this week, nudged upward by high-income shoppers, executives said.
And gas prices, while easing in recent weeks, are up overall for the year, just ahead of the busy summer season.
“For the last couple of years, the economy has been driven by household spending and now people are starting to say, ‘Let’s retrench here,’” said Jeffrey Roach, chief economist for LPL Financial. “The pressure from inflation has finally started to hit even upper-income households.”
The economy, while still remarkably strong, has slowed in recent months as the Federal Reserve tries to get inflation under control. Employers are adding fewer jobs, wage growth has decelerated, and Americans are holding off on big purchases like homes, cars and washing machines.
