US consumer sentiment collapses to 50.8, its second-lowest reading ever

Americans are losing confidence fast. Consumer sentiment just plunged to 50.8 in early May, dropping from 52.2 in April, based on new data from the University of Michigan. 

That makes this the second-lowest reading ever, only beaten by the collapse in June 2022. People across the country are blaming one thing: tariffs. They see them as the main reason prices are still going up—and they’re not wrong.

Nearly 75% of the respondents in the survey mentioned tariffs without even being asked, a huge spike from 60% the month before. The university’s survey director Joanne Hsu said clearly that uncertainty around trade policy is dominating how Americans view the economy. 

This wave of fear started spreading before the US and China hit pause on most tariffs in early May. That 90-day pause came after the majority of responses were collected, meaning it didn’t help shape this grim result. People were already bracing for the worst.

Consumers now expect inflation to get worse, not better

Inflation expectations are rising again—and fast. The survey showed that Americans expect prices to jump 7.3% over the next year, up from 6.5% in April. That’s the highest one-year outlook in months. Long-term inflation projections also crept higher, hitting 4.6% from 4.4%. These expectations are bad news for the Federal Reserve, which keeps a close eye on them when deciding what to do with interest rates.

Jerome Powell, Chair of the Fed, has said that rate cuts won’t return unless the central bank is confident inflation expectations aren’t getting out of control. Right now, they clearly are. This puts pressure on Powell and the Fed to stay put for longer than Wall Street had hoped.

The next update to the sentiment index comes May 30, and all eyes will be on whether the tariff pause makes any difference. But even if there’s a slight uptick, people are still dealing with crippling inflation, debt, and loan collections.

Loan collections resume as Department of Education hits borrowers

Another hit came from the Department of Education, which just restarted student loan collections this month under President Donald Trump. For the first time in around five years, Americans who defaulted on their loans are getting letters, seeing their wages docked, and facing legal action. This comes at the worst possible time for people already crushed by higher prices.

Murat Tasci, senior US economist at JPMorgan and former Cleveland Fed staffer, said the collections could strip $3.1 billion to $8.5 billion in disposable income every month. That’s a blow to consumers who are already struggling to stay afloat.

If you play that out over a full quarter, he said, the economy could see a 0.7% to 1.8% drop in disposable personal income compared to last year. That’s not theoretical—it’s real money gone from real wallets.

Jeffrey Roach, Chief Economist at LPL Financial, said, “You have a number of these pressure points rising. Perhaps in aggregate, it’s enough to quash some of these spending numbers.” Roach’s comment reflects what’s happening on the ground: Americans are cutting back.

Mihir Bhatia, an analyst at Bank of America, warned that subprime borrowers are getting hit the hardest. He said in a note to clients that this wave of loan payments “will have knock-on effects on broader consumer finances, most especially for the subprime consumer segment.” These are the same people who have little savings, no backup, and no way out.

Student loans aren’t some fringe issue either. Even though they make up just 9% of total consumer debt, once mortgages are excluded, that share shoots to 30%. Americans are carrying $1.6 trillion in student loan debt, an increase of $500 billion over the last decade, based on Bank of America numbers.

The New York Fed also flagged a spike in delinquencies. As of Q1, nearly one in four borrowers required to make payments is already behind. The share of delinquent borrowers jumped from 0.5% to 8% in just three months after the government started tracking those numbers again. That’s a sign of massive financial strain.

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