Consumer sentiment declines to 10-year low in May

Yahoo Finance anchors Brian Cheung and Akiko Fujita discuss April PCE price index data amid the inflationary environment.

Video transcript

BRIAN CHEUNG: Green across the board headed into the long weekend. You can the Dow Jones up 7/10 of a percent, the S&P 500 up 1.4%, and the NASDAQ up about 2%. When you unpack it and take a look under the hood at what's going on in markets, you could see on a sector basis that we're seeing quite a lot of movement, as well. Green also across the board, with tech, XLK leading today, at least up 2%.

Of course, all this on the backs of some major economic reports, the University of Michigan reporting consumer sentiment actually falling. A final reading on May, 58.4, compared to 59.1 expected. And of course, Akiko, inflation coming in on the personal consumption expenditures index. 6.3% increase on a year-over-year basis. Still high, but slower than the pace that we had seen in March.

AKIKO FUJITA: Yeah, and that's partly why we're seeing a lift in stocks today on this Friday. And you have to wonder if there is a sense here that there is some moderation. Of course, as we always say, you don't want to just take one month and say that's all the trend here, but there seems to be at least some signs that inflation, even if it is ticking higher, is slowing down a little.

BRIAN CHEUNG: Yeah, and of course, the Federal Reserve is not going to look at this one report and say, 6.3%. That's down from 6.6%. Mission accomplished. The Fed's target on this index is about 2%. So it's still very high. Americans don't need to be told this. They're experiencing that at the stores on a day-to-day basis. But very interesting to look at the individual components of the report. And you take a look, for example, at the personal saving rate.

AKIKO FUJITA: Savings rate, yeah.

BRIAN CHEUNG: 4.4% for the month of April. That's the lowest saving rate that we have seen since 2008. However, you also have to remember that that's a rate. So the levels of savings are still extremely elevated because of the stimulus that people had, right?

If you get a lot of income, even if you save a lower percentage of it, you can still have a high balance at your account. But there is the question largely of are people willing to make that savings rate go down even further from that because they have such a cushion in the bank. Is that what's fueling inflation?

AKIKO FUJITA: Well, and also, are they tapping into savings because costs are even higher.

BRIAN CHEUNG: Yeah, well, I mean, that's the kind of push/pull argument that we're experiencing right now, and that's the lens by which we're reading a lot of these earnings reports, as well. But if Americans are willing to go deeper into their savings, at what point do prices get high enough at Target, at Costco, at other retailers before they go, you know what, I think I need to just kind of chill a little bit right now, let my bank deposits start to actually grow in the opposite direction because this is getting a little bit untenable. You're hearing anecdotes of that, but again, as the data bears out, it's a little bit [INAUDIBLE]

AKIKO FUJITA: Yeah, maybe not necessarily reflected in the data, but you would think psychologically that's already happening, because you are starting to see the headlines of companies that are slowing hiring. There's a lot of references to a potential recession. And when you start to see some of those headlines, you imagine that's kind of when consumers, Americans in general say, well, maybe it's time to kind of slow things down in terms of where I'm spending, maybe have that cushion just a little more.

BRIAN CHEUNG: And the other bit is that the savings story kind of ignores the fact that, well, of course you can buy things on credit. But that's where the Fed comes into play. Yeah, you can lever up on your credit card, but if the interest rates are going up because the Fed is raising borrowing costs, which it has and will continue to do, that's part of the story of trying to quell that consumer demand, which we know is fueling that inflation. But again, the story very much far from done on whether or not we have reached the peak. But of course, markets moving very much on all of this. And--