Consumer sentiment in the United States took a hit in May, dropping to its lowest point this year. This decline comes amid renewed concerns about the American economy and elevated expectations for inflation in the long term. According to the University of Michigan’s preliminary reading of its consumer sentiment index, the figure dropped to 57.7—considerably lower than economists’ predictions that it would remain close to the previous month’s reading of 63.5.
Joanna Hsu, director of the university’s consumer surveys, stated that the participants’ concerns escalated following negative news about the economy, which included the debt ceiling crisis. Hsu added that while data does not indicate an imminent recession, more Americans believe that, if one occurred, it would not be brief.
Inflation expectations in the long run increased to 3.2 percent, reaching their highest point since 2011.
“Consumer sentiment tumbled 9 percent amid renewed concerns about the trajectory of the economy, erasing over half of the gains achieved after the all-time historic low from last June. While current incoming macroeconomic data show no sign of recession, consumers’ worries about the economy escalated in May alongside the proliferation of negative news about the economy, including the debt crisis standoff,” the report said.
Gold prices are holding firmly above $2,000 an ounce despite the drop in sentiment and amid growing recession fears about a potential debt crisis.
As economic uncertainties and inflation fears loom, gold has found solid safe-haven support, as evidenced by June gold futures last trading at $2,023.10 an ounce, up just a tenth of a percent on the day while the broader market finished in the red.
A recent report highlights the resilience of consumers amid the threat of inflation in the past year, but this resolve is slowly weakening as the economy slows. Political uncertainty surrounding the debt ceiling debate is further contributing to a growing sense of unease.
The report predicts that if President Joe Biden and Congress fail to resolve the debt ceiling crisis, consumers’ pessimistic outlook on the economy will exacerbate the dire economic consequences of default. Although gold has always been an attractive safe-haven investment, it is now increasingly being considered a hedge against inflation. Inflation expectations remain high as consumers anticipate a 4.5 percent increase this time next year, down slightly from 4.6 percent reported last month.
However, long-term inflation expectations are starting to rise, with five-year inflation expectations reaching 3.2 percent, the highest reading since 2011. As investors and consumers brace themselves for economic uncertainty, gold’s safe-haven appeal and its potential as an inflation hedge make it an attractive investment option.
