• Final May consumer sentiment reading of 52.2 beats preliminary estimate and economist forecasts.
  • Both short-term and long-term inflation expectations revised downward from preliminary figures.
  • Sentiment remains near historic lows as economic concerns persist.

Consumer Sentiment Shows Modest Improvement

The University of Michigan's final Consumer Sentiment Index for May came in at 52.2, slightly above the preliminary reading of 50.8 and surpassing economists' expectations of 51.0. While this represents a marginal improvement from the mid-month estimate, the index remains perilously close to the record low of 50.0 recorded in June 2022.

Inflation Expectations Revised Lower

Perhaps more significantly, both short-term and long-term inflation expectations were revised downward in the final reading. The one-year inflation outlook settled at 6.6%, notably below the preliminary 7.3% estimate though still elevated compared to April's 6.5%. Similarly, the 5-10 year inflation expectation was finalized at 4.2%, down from both the preliminary 4.6% and April's 4.4%.

Market analysts suggest the May 12 pause on some China tariffs may have contributed to the downward revision in inflation expectations between the preliminary and final readings. "The tariff relief appears to have taken some edge off consumers' near-term inflation fears," noted one economist who asked not to be named as they weren't authorized to speak publicly.

Persistent Economic Concerns

Despite these modest improvements, the broader picture remains concerning. This marks the fifth consecutive monthly decline in consumer sentiment, with the index down nearly 30% since January. Personal finance assessments deteriorated by nearly 10% as consumers reported weakening incomes. Political divisions also colored the results, with sentiment among Republicans dropping 7% while independents showed slight improvement.

Three-quarters of respondents spontaneously mentioned tariffs as a concern, up from 60% in April, suggesting trade policy remains top of mind for American consumers. The Federal Reserve will likely view the downward revision in inflation expectations as welcome news, though policymakers remain cautious given the still-elevated readings.

Correction: An earlier version of this article incorrectly stated the preliminary May sentiment reading was 51.0. The correct preliminary figure was 50.8.