U S. consumer sentiment plunges to lowest since pandemic amid rising anxieties over tariffs

“Forecasting where inflation was headed since the pandemic has been a humbling experience for economists and financial markets, but consumers have done a fairly good job,” said Sweet. “Therefore, the rise in near-term inflation expectations should not be ignored and is being driven by tariffs.” American consumers expect prices to rise by 6.7% over the next year, according to a closely watched survey of consumer sentiment from the University of Michigan.

Yet the fact that worries about employment are rising could lead to more caution by consumers. Americans’ inflation expectations over the next five years are now at the highest since 1991, according to Capital Economics, a forecasting firm. About 60% of consumers this month spontaneously mentioned tariffs during interviews, up sharply from 44% in March. Expectations have fallen a precipitous 32% since January, the steepest three-month percentage decline seen since the 1990 recession. While this month’s deterioration was particularly strong for middle-income families, views of the economic outlook in both the short and long run worsened for vast swaths of the population across age, education, income and political affiliation.

Consumer spending makes up roughly two-thirds of the domestic economic output for the United States. “This lack of labor market confidence lies in sharp contrast to the past several years, when robust spending was supported primarily by strong labor markets and incomes,” Hsu said. Consumer sentiment fell sharply in April, marking the fourth consecutive month of declines, as an intensifying trade war fueled anxiety over American jobs and rising inflation. Economists also worry about signs of flagging consumer confidence, because ennui can prompt consumers to stop spending. The current economic conditions index fell to 56.5, an 11.4% drop from March, while the expectations measure slipped to 47.2, a 10.3% fall and its lowest since May 1980.

• Critically, these consumers generally expect tariffs to generate substantial upward pressure for inflation in the future and to weaken the outlook for economic growth as well.
• The data series is calculated by the Dallas Fed, using data from the Bureau of Economic Analysis (BEA).
• As recently as December, consumers expected an annual inflation rate of 2.8%.

“Keeping inflation expectations anchored is critical for the Fed and one reason we don’t anticipate the central bank cutting interest rates until December.” The Fed pays close attention to inflation expectations, because they can become self-fulfilling. If people expect prices to rise, they often take steps that can push up prices, such as accelerating purchases or seeking higher wages. In another consumer confidence survey, from The Conference Board in March, Americans said they expect prices to rise by 5.1% in the next year.

The Michigan survey comes as the financial industry is growing more concerned about inflation. Just last month, the Federal Reserve forecast its preferred inflation measure would rise to 2.7% by year’s end. Less than half of consumers expect their own incomes to grow in the year ahead, down from nearly 60% half a year ago. About 67% of consumers expect that the purchasing power of their incomes will be eroded over the next year, up from 59% in October 2024. The survey comes amid concerns that President Donald Trump’s tariffs will raise inflation and slow growth, with some prominent Wall Street executives and economists expecting the U.S. could teeter on recession over the next year. Typically, falling sentiment suggests that Americans will cut back on spending, though in recent years consumers have at times kept spending despite the gloom.

Historical Monthly Index of Consumer Sentiment

Every month, the University of Michigan’s Surveys of Consumers asks Americans to predict the rate of inflation over the next year. As recently as December, consumers expected an annual inflation rate of 2.8%. The survey figure rose to 4.3% in February, 5% in March and 6.7% in April, based on preliminary data. In this note, we summarize our observations from an economic sentiment survey linking panelists’ responses to verified purchases. Consumer sentiment deteriorated since 2019, but spending remained strong even among those who felt they were doing much worse or experienced income losses as of 2024. This disconnect between what consumers have been saying and doing suggests that consumer sentiment surveys on their own have become weaker indicators of future consumer behavior and of the health of US consumers.

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The Current Index fell to 59.8, down from 63.8 in March and below last April’s 79.0. The Expectations Index fell to 47.3, down from 52.6 in March and below last April’s 76.0. This month’s figure includes the 59% of Independents and 44% of Republicans who referenced tariffs, showing that these tariff concerns are widespread and span the political spectrum, Hsu said.

Consumer sentiment grew even worse than expected in April as the expected inflation level hit its highest since 1981, a closely watched University of Michigan survey showed Friday. The University of Michigan’s Consumer Sentiment Index provides a month-to-month measurement of U.S. consumer confidence dating back to the mid-20th Century. According to Sweet, consumers’ perception of inflation has historically been driven by food and gasoline prices, as opposed to U.S. trade policies. “Tariffs and the drop in equity prices are not sitting well with consumers,” said Ryan Sweet, chief U.S. economist at Oxford Economics, in a note. “I think there’s a great optimism in this economy,” said White House press secretary Karoline Leavitt, when asked about consumer survey. She noted President Trump’s earlier comment that Americans should expect a period of “transition” as he seeks to renegotiate trade deals with countries across the world.

U.S. consumer sentiment plunges to lowest since pandemic amid rising anxieties over tariffs

• Only 23 percent of respondents reported that their incomes grew at the same rate or faster than their spending.
• The Index of Consumer Expectations (a sub-index of ICS) is included in the Leading Indicator Composite Index published by the U.S.
• Americans’ inflation expectations over the next five years are now at the highest since 1991, according to Capital Economics, a forecasting firm.

People’s negative sentiment seems to be driven by the perception that incomes have not kept up with prices, even though real spending has increased, and by the effort they exerted to adapt to rising prices. Although sentiment improves with higher incomes, the more people said they had to make changes to their behaviors since 2019 to reduce spending, the worse is their sentiment. Moreover, those who experienced increases in their incomes still reported negative sentiment, citing the need to work more hours or take on additional jobs to earn extra income. This situation may reverse as inflation continues to decline or if the labor market weakens. Figure 1 plots three lines from the University of coinberry review Michigan’s Survey of Consumers.

Market analysts pay attention to the Michigan survey on inflation expectations. Historically, consumers have proven fairly accurate in predicting the actual inflation rate, Hsu said. Only 14 percent of respondents said their incomes went up more than prices, 33 percent said their incomes went up about the same as prices, and 53 percent said their incomes went up less than prices.

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This situation similarly occurred during the inflationary episodes of the 1970s and early 1980s. Most respondents felt their annual income did not keep up with their spending but recall that consumers tend to over-estimate the extent of retail price inflation they experienced. Only 23 percent of respondents reported that their incomes grew at the same rate or faster than their spending. The more consumers said their income did not keep up with spending, the greater the share who said they were doing worse or much worse in today’s economy compared with 2019.

Widespread unease about trade policy

The University of Michigan’s closely watched consumer sentiment index, released Friday, fell 11% to 50.8, the lowest since the depths of the pandemic. The Surveys of Consumers is a rotating panel survey at the University of Michigan Institute for Social Research. It is based on a nationally representative sample that gives each household in the coterminous U.S. an equal probability of being selected. The minimum monthly change required for significance at the 95% level in the Sentiment Index is 4.8 points; for the Current Index and Expectations Index, the minimum is 6 points.

Gain an edge with CNBC Pro LIVE, an exclusive, inaugural event at the historic New York Stock Exchange. In addition to the other readings, the survey showed unemployment fears rising to their highest since 2009. “Consumers have spiraled from anxious to petrified,” wrote Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics. Capital One Shopping gets you better offers, automatically applies the best coupon code at checkout, and lets you oanda review know when prices drop on products you’ve viewed and purchased.

Consumer sentiment fell to historic lows in mid-2022, lower than during the Great Financial Crisis and during the depths of the pandemic. In late-2024, consumer sentiment remained substantially lower than pre-pandemic levels. Historically, consumer sentiment moves in tandem with concerns regarding lower income and higher prices on household finances, and sharp drops in consumer sentiment tend to precede or coincide with recessions. This time, the sustained drop in consumer sentiment following the pandemic has not preceded or coincided with a recession. Perhaps one of the reasons for this anomaly is that the link between overall consumer sentiment and sentiment regarding income seems to have broken in mid-2022, which is evident in the inset box that shows the series from 2019 onwards. Since mid-2022, consumer sentiment has been moving more closely with sentiment regarding higher prices than with sentiment regarding income.

Consumers, economists growing worried about inflation

Over the past few years, there has been a change in how overall consumer sentiment corresponds with sentiment regarding incomes and prices. Usually, consumer sentiment moves closely with sentiment regarding income growth. More recently, sentiment has been moving closely with sentiment regarding price levels. The White House responded to the sagging consumer confidence figures by noting the latest monthly inflation report, which showed prices easing in March.

Nearly two-thirds of consumers expect unemployment to rise in the year ahead, more than double the reading from six months ago. In an alarming development, consumers are increasingly worried that their income fbs broker review prospects may be worsening as well, Hsu said. Critically, these consumers generally expect tariffs to generate substantial upward pressure for inflation in the future and to weaken the outlook for economic growth as well. While consumers may have seen the April 9 announcement of a partial pause on tariff increases as a positive development, the announcement was not enough to settle consumers’ concerns over the potential impact of trade policy on the economy, Hsu said.

The analysts warn of consumer spending “increasingly restrained by caution under the Trump economic agenda.” And Americans now expect long-term inflation to reach 4.4%, up from 4.1% last month, a move that may be of particular concern for the U.S. While the April decline in current conditions was relatively modest, the expectations index plummeted with drop-offs in personal finances as well as business conditions, said economist Joanne Hsu, director of the University of Michigan’s Surveys of Consumers.