By Lucia Mutikani
WASHINGTON, May 22 (Reuters) - U.S. consumer sentiment fell to a record low in May as surging gasoline prices linked to the Iran war intensified affordability concerns, highlighting broader dissatisfaction with President Donald Trump’s handling of the economy.
The University of Michigan's Surveys of Consumers on Friday showed sentiment among Republicans and Independents dropped to the lowest level of Trump's second term. Trump won re-election in 2024 in large part because of his promise
to reduce inflation, but Americans have faced higher prices from his sweeping tariffs and now from the U.S.-Israeli war with Iran.
The nearly three-month-long conflict has disrupted shipping in the Strait of Hormuz, boosting energy prices, as well as straining global supply chains and causing shortages of a wide range of goods, including fertilizers, aluminum and consumer products. The national average retail gasoline price has jumped more than 50% since the war started to about $4.552 a gallon, data from motorist advocacy group AAA showed.
"American consumers are angry about the economy," said Heather Long, chief economist at Navy Federal Credit Union. "They don't like high costs for so many basics of life."
The University of Michigan's Surveys of Consumers said its Consumer Sentiment Index dropped to a final reading of 44.8, an all-time low, from 48.2 earlier this month. The index was at 49.8 in April. Economists polled by Reuters had forecast the index unchanged at 48.2.
Sentiment among Republicans fell to the lowest level since November 2024, a deterioration mirrored in other independent surveys. A Reuters/Ipsos survey this week showed Trump's presidential approval rating fell to nearly its lowest level since he returned to the White House, hit by a drop in support among Republicans. The growing discontent is a warning sign for Trump and his Republican Party as they seek to hold their majorities in the November midterm elections.
The University of Michigan's Surveys of Consumers showed little change in mood among Democrats. There were marked declines in sentiment among lower-income consumers and those without college degrees, groups who are disproportionately impacted by higher prices for gasoline and other essentials.
"The cost of living continues to be a first-order concern, with 57% of consumers spontaneously mentioning that high prices were eroding their personal finances, up from 50% last month," said Joanne Hsu, the director of the Surveys of Consumers.
Investors shrugged off the slump in sentiment. Stocks on Wall Street were trading higher, with the blue-chip Dow Jones Industrial Average hitting a record high for the first time since the Iran war began. The dollar was steady against a basket of currencies. U.S. Treasury yields rose.
NO CHEER FROM STOCK MARKET RALLY
Rising share prices on the stock market have not cheered consumers, with economists noting that most of the wealth was tied up in retirement accounts. There are concerns that soaring inflation, which has outpaced wage gains, could undercut spending. Consumer spending has so far shown resilience, thanks to hefty tax refunds and households drawing down savings.
But the tax filing season is over and economists do not believe that consumers will be comfortable continuing to tap savings as economic uncertainty rises.
"Consumers are still spending, but the cost of living crisis means that every last dollar in their wallets is getting paid out for life's bare necessities without any money leftover for entertainment or holidays," said Christopher Rupkey, chief economist at FWDBONDS.
"The income tax refunds must be gone already or the money spent on the higher prices seen everywhere in the economy."
Consumer inflation increased at its fastest pace in three years in April. With no clear end in sight to the Middle East conflict, consumers worried that inflation would continue to increase and spread out to other goods and services.
The survey's measure of consumer expectations for inflation over the next year rose to 4.8% from 4.7% in April. Consumers' expectations for inflation over the next five years shot up to 3.9% from 3.5% last month, reflecting "sizable jumps among independents and Republicans."
The rise in inflation expectations further strengthened financial market views that the Federal Reserve would leave its benchmark overnight interest rate in the 3.50%-3.75% range into next year.
"The Fed can only look through the rising inflation rate during the oil price shock provided inflation expectations remain anchored," said John Ryding, chief economic advisor at Brean Capital. "Fed officials have claimed that this is the case but this report sorely tests that claim."
(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama, William Maclean)
