US consumer confidence dips in May amid inflation and labor worries

WASHINGTON (Reuters) – U.S. consumer confidence eased in May as worries about inflation linked to the war in Iran intensified and households’ views of the labor market were largely pessimistic, though they anticipated an improvement by the end of this year.

The marginal drop in confidence reported by the Conference Board on Tuesday contrasted starkly with the University of Michigan‘s Surveys of Consumers, released last week, which showed consumer sentiment plumbing record lows in May. Still, it was the latest sign of growing dissatisfaction with President Donald Trump‘s handling of the economy.

Trump won the 2024 presidential election in large part because of his promise to lower inflation, but U.S. consumers have faced higher prices, first from his sweeping import tariffs and, more recently, from the U.S.-backed war with Iran. A Reuters/Ipsos survey last week showed Trump’s presidential approval rating fell to nearly its lowest level ​since he returned to the White House in January 2025.

The darkening mood poses a challenge for Trump’s Republican Party as it seeks to retain control of the U.S. Congress in the midterm elections in November.

“Americans are upset about high prices and trying to stretch every dollar, but they aren’t as gloomy as they were during the Great Recession, the COVID recession or just after ‘Liberation Day’ last year,” said Heather Long, chief economist at Navy Federal Credit Union.

The Conference Board said its consumer confidence index slipped to 93.1 this month from an upwardly revised 93.8 in April. Economists polled by Reuters had forecast the index would drop to 92.0 from the previously reported 92.8 in April. The labor market has a big influence on the index, while the University of Michigan survey is more sensitive to gasoline prices.

The decline in confidence occurred among consumers under 35 and those 55 and older. Consumers in the 35-54 age group were slightly more optimistic this month.

Households with annual incomes between $15,000 and $39,999 experienced a sharp decline in confidence. Lower-income households have been disproportionately affected by rising gasoline prices, which have increased by more than 50% since the war in late February.

The conflict has disrupted shipping in the Strait of Hormuz, straining global supply chains and boosting prices of a range of commodities, including oil and fertilizers.

The Conference Board noted that consumers’ write-in responses on factors affecting the economy continued to skew toward pessimism.

“References to prices and oil and gas increased in frequency for a second consecutive month, while mentions of war, geopolitics, and conflict remained elevated – likely signaling consumers’ underlying concerns about the inflationary impacts of the war in the Middle East on their wallets,” said Dana Peterson, chief economist at the Conference Board.

Confidence was higher among consumers with annual incomes above $100,000, likely reflecting the rise in net worth due to a stock market rally. Though the correlation between confidence and consumer spending is weak, economists cautioned that rising gasoline prices could pull spending from other goods and services. Higher inflation is also expected to curb demand.

Consumers Cutting Back On Spending

A supplementary survey by the Conference Board showed that as of May, two-thirds of consumers reported cutting back on spending overall due to rising prices. Most of those scaling back bought fewer items and delayed expensive purchases. Many were delaying purchases of items they want rather than need, and planned to buy them in the next six months, it showed.

Consumers also planned to economize on clothing and footwear, hobby items, as well as games and toys.

Consumer spending has largely held up, driven by larger tax refunds and households tapping into savings. Inflation has outpaced wage growth for the first time in three years.

Households’ perceptions of the labor market were mixed this month. The share of households viewing jobs as “plentiful” dropped to the lowest level since February 2021. But the share reporting that jobs were “hard to get” hit a seven-month low.

The survey’s so-called labor market differential, derived from data on respondents’ views on whether jobs are plentiful or hard to get, narrowed to 6.9 from 7.5 last month.

This measure correlates to the unemployment rate in the Labor Department’s monthly employment report. Nonetheless, consumers expected more jobs over the next six months.

Economists believe the labor market will likely determine whether the Federal Reserve resumes its interest rate cuts. Financial markets expect the U.S. central bank to keep its benchmark overnight interest rate in the 3.50%-3.75% range into 2027 amid inflation pressures.

Despite soaring gasoline prices, more consumers planned to take vacations over the next six months and drive to their destinations.

The Conference Board noted that consumers planning to increase spending on services over the next six months shifted from “yes” and “maybe” to “no” responses. It added that trends in 2026 remained focused on “cheap thrills” and necessary services. Plans to buy big-ticket items over the next six months shifted to “no” from “yes” last month, the Conference Board said.

The share planning to buy a house declined, likely reflecting rising mortgage rates. A separate report from the Federal Housing Finance Agency showed single-family house prices increased 1.7% in the 12 months through March after rising by the same margin in February.

“Slowing home price growth is not enough to offset recent rate moves,” said Michael Gapen, chief economist at Morgan Stanley. “Affordability has deteriorated since February, though remains better versus last year’s troughs.”

(Reporting by Lucia Mutikani; Editing by Paul Simao)