US Consumer Confidence Is Falling: What It Means For Investors

Persistently elevated inflation and a slowing economy are taking their toll on U.S. consumer confidence, and it could spell bad news for the SPDR S&P 500 ETF Trust SPY.

What Happened? U.S. consumer confidence dropped to a three-month low in May, according to the Consumer Confidence Survey. The Consumer Confidence Index dropped to 106.4 in the month, down from 108.6 in April.

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Why It's Important: The biggest area in which consumers got more negative in May was the labor market. The survey found 51.8% of consumers said jobs were "plentiful," down from 54.8% in April. In addition, 12.5% of consumers said jobs are "hard to get," up from 10.1% a month ago.

"The decline in the Present Situation Index was driven solely by a perceived softening in labor market conditions," said Lynn Franco, Senior Director of Economic Indicators at The Conference Board.

Jeffrey Roach, Chief Economist for LPL Financial, said rising gas prices have a psychological impact on consumer sentiment, even though they represent only a small amount of total spending. Roach said consumer sentiment has been pressured, but it hasn't tanked since the Federal Reserve began raising interest rates, which is exactly what the Fed was hoping for.

"Inflation expectations are roughly unchanged from April levels, increasing the likelihood that inflation expectations can remain anchored as the Federal Open Market Committee (FOMC) removes accommodative monetary conditions," Roach said.

Benzinga's Take: Investors should continue to monitor consumer sentiment levels for any sharp downtick in coming months, especially as interest rates rise. If consumers start to lose confidence in the economy at some point, it could mean that the Fed will be unable to avoid pushing the U.S. economy into a recession as it takes measures to curb inflation.