US consumer sentiment slumped to its lowest level in nearly 11 years in early May as worries about inflation persisted, but household spending remains underpinned by a strong labour market and massive savings, which should keep the economy expanding.

The University of Michigan’s survey showed the deterioration in sentiment, which some economists said pushed it into recessionary territory, was across all demographics, as well as geographical and political affiliation.

Gasoline prices and the stock market have a heavy weighting in the survey.

Gasoline prices resumed their upward trend this month, setting an average record high of $4.432 per gallon on Friday, according to AAA. Fears that the Federal Reserve will have to aggressively tighten monetary policy to bring down inflation have unleashed a massive equities sell-off on Wall Street.

“But confidence has been a poor guide to consumption growth in recent years, so we would not read too much into that signal,” said Michael Pearce, a senior US economist at Capital Economics in New York. “Just because consumers resent paying higher prices and are suffering limited availability doesn’t mean they aren’t still making those purchases.”

The University of Michigan’s preliminary consumer sentiment index tumbled 9.4 per cent to 59.1 early this month, the lowest reading since August 2011. Economists polled by Reuters had forecast the index dipping to 64.

The sharp decline is in stark contrast with the Conference Board’s consumer confidence survey, whose index remains well above the COVID-19 pandemic lows.

The Conference Board survey places more emphasis on the labour market, which is generating jobs at a brisk clip. Wages are also rising as employers scramble to fill a record 11.5 million job openings as of the end of March.

The University of Michigan survey’s gauge of current economic conditions dropped 8.4 per cent to 63.6. That was the lowest reading since 2013, and 36 per cent of consumers attributed their negative assessment to inflation. Its measure of consumer expectations declined 9.9 per cent to 56.3.

Consumers viewed buying conditions for long-lasting manufactured goods as the worst since the survey started tracking the series in 1978. Economists were unfazed, noting that consumers were sitting on at least $2 trillion in excess savings accumulated during the pandemic.

“But consumer spending keeps rising, and with savings high, household debt low and the jobs market strong, that spending should continue until the economy falters,” said Robert Frick, corporate economist with Navy Federal Credit Union in Vienna, Virginia.

Even as consumers stressed about high prices, long-term inflation expectations appeared to be well anchored.

The survey’s one-year inflation expectations were at 5.4 per cent for the third straight month. Its five-year inflation expectations were unchanged at 3.0 per cent for the fourth consecutive month.

Stocks on Wall Street rebounded after a tumultuous week, while the dollar fell against a basket of currencies. US Treasury yields rose.

There have been worries that high inflation and the Fed’s interest rate hikes, which started in March, could abruptly slow growth or even tip the economy into recession. The economy contracted in the first quarter under the weight of a record trade deficit, but domestic demand remained solid.

Though inflation is likely to remain elevated, signs are growing that price pressures have peaked.

A separate report from the labour Department showed import prices were unexpectedly flat in April as a decline in the cost of petroleum offset gains in food and other products. Import prices had surged 2.9 per cent in March.

Economists had forecast import prices, which exclude tariffs, would climb 0.6 per cent. In the 12 months through April, import prices rose 12.0 per cent after accelerating 13.0 per cent in the year through March.

Government data this week showed monthly consumer prices increased at the slowest pace in eight months, while the gain in producer prices was the smallest since last September.

With oil prices drifting higher in May, monthly import, consumer and producer prices are likely to pick up.

Annual inflation rates are expected to continue edging lower, though likely to stay above the Fed’s 2 per cent target.

The deceleration is mostly the result of last year’s big increases dropping out of the calculation. The US central bank last week raised its policy interest rate by half a percentage point, the biggest hike in 22 years, and said it would begin trimming its bond holdings next month.

Imported fuel prices dropped 2.4 per cent last month after soaring 17.3 per cent in March. Petroleum prices declined 2.9 per cent, while the cost of imported food increased 0.9 per cent. Prices of imported capital goods rose 0.4 per cent.

The cost of imported consumer goods excluding motor vehicles was unchanged. Prices of imported motor vehicles and parts climbed 0.3%. Excluding fuel and food, import prices rose 0.4 per cent. These so-called core import prices advanced 1.3 per cent in March.