Consumer sentiment held steady in May, ending four consecutive months of plunging declines.
Sentiment had ebbed through mid-May but turned a corner in the latter half of the month following the temporary pause on some tariffs on China goods, said economist Joanne Hsu, director of the University of Michigan's Survey of Consumers.
Short-run business conditions improved after mid-month, likely a consequence of the trade policy announcement, she said. However, this positive change was offset by declines in current personal finances stemming from stagnating incomes.
Overall, consumers see the outlook for the economy as no worse than last month, but they remain quite worried about the future, Hsu said.
"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," she said. "In the second half of the month, sentiment lifted and inflation expectations eased in the wake of the May 12 pause on some tariffs on goods from China. With continued policy uncertainty, however, consumers continue to expect an economic slowdown to come."
Outlook for business conditions and labor markets remains bleak
About 64% of consumers expect business conditions to worsen in the year ahead, unchanged from April but up from 29% six months ago. Likewise, the share of consumers expecting unemployment to rise has been hovering around two-thirds for three straight months-up from less than one-third in November 2024.
"Consumers continue to worry that they may be personally impacted by a macroeconomic slowdown," Hsu said. "In an alarming development, consumers are increasingly worried that their own income prospects may be worsening."
A growing share of consumers are already reporting that their incomes are stagnating, she said. Less than half of consumers expect their own incomes to grow in the year ahead, down from nearly 60% half a year ago.
Consumers continue to worry about purchasing power
Costs of living and purchasing power continue to be top of mind for consumers, consistent with the views they have been espousing since the pandemic.
According to Hsu, consumers remain frustrated by the persistence of high prices, with 38% citing that their personal finances have been eroded by those high prices-down from 44% in November 2024 but still, by far, the top-cited factor.
About 68% of consumers expect that the purchasing power of their incomes will be eroded over the next year, up from 57% in November 2024. Although consumers may have viewed the May 12 policy announcements favorably, they are still expecting trade policy overall to yield higher prices, at least in the short run, adding to their continued frustration, Hsu said.
Consumer Sentiment Index
The Consumer Sentiment Index was 52.2 in the May 2025 survey, unchanged from 52.2 in April and below last May's 69.1. The Current Index fell to 58.9, down from 59.8 in April and below last May's 69.6. The Expectations Index rose to 47.9, up from 47.3 in April and below last May's 68.8.
About the surveys
The Surveys of Consumers is a rotating panel survey at the University of Michigan Institute for Social Research. It is based on a nationally representative sample that gives each household in the coterminous U.S. an equal probability of being selected. Interviews are conducted throughout the month by web. The minimum monthly change required for significance at the 95% level in the Sentiment Index is 4.8 points; for the Current Index and Expectations Index, the minimum is 6 points.
