Consumer sentiment fell back about 10% this May following three consecutive months of very little change. This 8.1 index-point decrease is statistically significant and brings sentiment to its lowest reading in about five months. The year-ahead outlook for business conditions saw a particularly notable decline, while views about personal finances were little changed. Consumers expressed particular concern over labor markets; they expect unemployment rates to rise and income growth to slow. The prospect of continued high interest rates also weighed down consumer views. These deteriorating expectations suggest that multiple factors pose downside risk for consumer spending. Still, sentiment remains almost 20% above a year ago and about 40% above the all-time historic low in June 2022, reflecting how much consumer views have improved as inflation eased.

Year-ahead inflation expectations edged up from 3.2% last month to 3.3% this month, remaining above the 2.3-3.0% range seen in the two years prior to the pandemic. Long-run inflation expectations held steady at 3.0% for the second straight month. Although they have been within the narrow 2.9-3.1% range for 30 of the last 34 months, long-run inflation expectations remain elevated relative to the 2.2-2.6% range seen in the two years pre-pandemic.

All of these patterns are visible when looking at trends within phone interviews alone or web interviews alone, and thus they are not artifacts of the survey's methodological transition.