Quick Facts

• University of Michigan Consumer Sentiment Index dropped to historic low of 44.8 in May 2026, down from 49.8 in April
• 57% of consumers cited high prices eroding their finances, up 7 percentage points from the previous month
• Long-term inflation expectations jumped to 3.9% from 3.5%, well above Federal Reserve targets

Consumer sentiment crashed to its lowest reading on record in May 2026, according to the University of Michigan’s Consumer Sentiment Index. The final reading of 44.8 marked the third consecutive monthly decline and fell below even the preliminary estimate of 48.2.

The drop represents a 46.6% decline from the historical average of 83.9 since the survey began in 1952.

“The cost of living continues to be a first-order concern,” said Joanne Hsu, director of the university’s surveys of consumers. “Critically, consumers appear worried that inflation will increase and proliferate beyond fuel prices, even in the long run.”

Energy Crisis Drives Consumer Anxiety

The Iran conflict has emerged as the primary driver of economic uncertainty. Iran’s closure of the Strait of Hormuz has disrupted 20% of global oil supplies, leading to what the International Energy Agency called the “largest supply disruption in the history of the global oil market.”

Oil prices surged 10-13% to around $80-82 per barrel by March 2026 following the conflict’s start on February 28. While prices have fallen about 20% from their peaks, Brent crude still trades around $92.56.

Long-run inflation expectations jumped 0.5 percentage points to 3.9% in May, up from 3.5% in April. One-year inflation expectations also rose to 4.8% from 4.7%.

Retail Industry Faces Mounting Pressure

The consumer spending slowdown is hitting retailers hard. Real consumer spending growth is expected to decline to about 1.5% in 2026.

“More cautious consumer behavior and affordability concerns will leave the retail and consumer durable industries most vulnerable,” warned analysts. Whirlpool CFO Roxanne Warner reported appliance demand has “reached recession-level lows,” with the industry contracting about 7.4%.

Consumer behavior is shifting as households hunt for deals. The average U.S. consumer now shops at 3.1 different grocery stores per month, up 8% from the prior year. Gas station visits increased 7% to 2.6 per month as drivers search for lower prices.

McKinsey survey data shows 43% of consumers rank inflation as their top financial concern, with more than 60% changing or planning to change buying habits.

Fed Maintains Cautious Stance

The Federal Reserve held the federal funds rate at 3.5% to 3.75% at its latest meeting, citing elevated inflation “partly reflecting recent increases in global energy prices.”

Christopher Rupkey, chief economist at FwdBonds, noted the challenging environment: “The American consumer is treading water here. The stock market record highs are having no effect whatsoever on cheering consumers up, which means most Americans have the money locked up in 401K retirement accounts.”

A sustained rise in long-term inflation expectations could force the Fed to raise rates further to prevent price gains from straying from target.

Read more: Consumer sentiment falls to new low; cost of living ‘first-order’ worry