US DATA: UMichigan Details Hint At Limited Consumer Appetite To Absorb Tariffs

The sharp drop in consumer confidence in the preliminary UMichigan survey for May was broad-based. This is "soft" data that may not ultimately translate into actual consumer behavior (the "hard" data so far remains relatively resilient), and the readings could improve in the final report post-US/China tariff war climbdown, but the details are undeniably negative. 

• As noted earlier, consumer sentiment fell to the 2nd-lowest ever reading of 50.8 (53.4 survey, 52.2 prior), as both current conditions (57.6 vs 59.9 survey, 59.8 prior) expectations receded further (46.5 vs 48.6 survey, 47.3 prior). The declines in these aggregates are more incremental than dramatic at this point after their collapse in previous months, but the lack of improvement is notable.
• It's difficult to find any mitigating factors in the survey details either, with tariffs heavily impacting sentiment in a negative direction (and the deterioration in sentiment for Republicans was greater than for for Democrats and Independents in this report, so it isn't simply a partisan development).
• Respondents' expectations of household income changes / higher real income over the next year hit new lows, reflecting not just pessimism on personal financial situations in nominal but also in real terms. Current assessments of personal finances fell nearly 10%. For the 2nd consecutive month, 65% of respondents said they expect higher unemployment in the next year, but that also extended to their own personal situation - with expectation of personal job losses over the next 5 years, remaining around the highest levels of the pandemic.
• That and other factors hint at consumers' limited ability and willingness to absorb price increases: "only about 17% of consumers reported that they expect to continue spending as usual on items with high price increases. In contrast, in August through October 2022, twice as many consumers—about 36%—expected to hold such spending steady amid post-pandemic inflation. These early results suggest that the resilience of consumer spending this year may be in question."
• While "good conditions to buy a large household item" ticked higher, it remains subdued on a historic basis and well of the jump seen late last year (which was possibly a tariff front-running effect).
• As noted in the report, "uncertainty over trade policy continues to dominate consumers’ thinking about the economy". Respondents' opinions of the government's economic policy (specifically, on inflation/unemployment) remained at a post-2011 low.