A break in the trade clouds lifted consumers' spirits in May

CNN

2 hours ago

Americans felt a whole lot better about prices and the job market in May, a month that featured a détente in the trade war between the US and China.
Consumers' year-ahead expectations for inflation tumbled in May by 0.4 percentage points to 3.2%, according to the Federal Reserve Bank of New York's latest Survey of Consumer Expectations released Monday.
It was the biggest monthly sinking of near-term inflation expectations since November 2022, when price hikes slowed much more than expected and the Federal Reserve delivered another heavy-handed effort to curb decades-high inflation.
The May survey appeared to mark a more elated moment for consumers in the emotional roller coaster ride they've been on since President Donald Trump enacted sweeping actions, notably a frenetic domestic trade policy of escalating import taxes on many materials and products that come in to the US.
Inflation expectations also declined (though not as sharply) at the three- and five-year time horizons, to 3% and 2.6%, respectively, New York Fed data showed.
The Federal Reserve closely monitors gauges of near-, medium- and long-term inflation expectations as those could be self-fulfilling prophecies for consumers: If people think prices will be higher in the future, they might spend more now or even demand higher wages. In turn, businesses faced with higher costs might end up raising prices as a result.
Economists wholly expect that high tariffs will result in higher prices for consumers, but how much and to what extent they become inflationary remains to be seen.
The tariffs, and the fluctuating nature of Trump's negotiations, have driven uncertainty higher and sentiment to near-record lows. Consumers haven't just been anxious about higher prices, they're worried about jobs: The New York Fed's April survey, for example, showed that expectations for the unemployment rate to increase hit the highest level since the early days of the pandemic.
Those fears have been quelled for now.
In May, the mean perceived probability of the nation's jobless rate being higher than it is now dropped 3.3 percentage points to 40.8%. And people's own job security perceptions improved as well, with job separation expectations dropping 0.5 percentage points to 14.8%.
Survey respondents also felt more optimistic about their chances of finding a job if they found themselves unemployed, and they also felt an inkling of improvement in their incomes rising (the median expected growth in household income nudged up by 0.1 percentage point to 2.7%).
The May survey showed improvement across household finance expectations, including slightly better access to credit and less of a probability of a missed debt payment.
Still, Monday's report showed that one pain point continues to be persistent for consumers: The grocery store run.
The year-ahead expected change in food prices increased 0.4 percentage point to 5.5%, the highest rate since October 2023.