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Key Takeaways
- The Michigan Consumer Sentiment Index dropped from 57.9 to 57.9 last month, which is well below the expectations and its lowest level since 2012.
- Tariff threats are causing consumers to worry about higher prices, which has a direct impact on inflation expectations.
- While consumers are still satisfied with the current economic situation, concerns about the future of the economy have intensified across the political divide.
For consumers, it's starting to feel like 2022 again as inflation worries mount and uncertainty over the economy grows.
The Michigan Consumer Sentiment survey’s preliminary March survey showed a drop to 57.9, from 64.7 the previous month. It was the lowest reading since November 2022, after inflation spiked as the economy reopened following the pandemic shutdowns.
The Wall Street Journal and Dow Jones Newswires surveyed economists who expected a modest decline in March. Optimism rose following the November election but has since fallen as tariff threats from President Donald Trump have rattled markets. This is the third month that consumer sentiment has declined.
“Consumer sentiment fell further in March as rising uncertainty in the economy threatens to take the wind out of the sails of the consumer sector,” wrote Nationwide Economist Daniel Vielhaber.
Inflation Expectations soar on Tariff Fears
Inflation expectations have contributed to a negative mood as consumers have accounted for higher-than-usual increases in prices in the year ahead each of the three previous months. Consumers predicted annual cost increases in March of 4.9%, compared with 4.3% last month.
Consumers’ expectations for the economy in the future dropped sharply, despite a slight dip in their view of current conditions. Survey respondents expressed concerns over their personal finances, the job market, inflation, business conditions, and stock markets. Surveys Consumers Director Joanne Hsu confirmed this.
“Many consumers cited the high level of uncertainty around policy and other economic factors; frequent gyrations in economic policies make it very difficult for consumers to plan for the future, regardless of one’s policy preferences,” Hsu said.
Retailers report a softening of spending, while inflation expectations continue their rise. Sentiment surveys improve after elections, as uncertainty decreases. However, Trump’s frequent announcements of tariffs have roiled the markets and increased consumer fears about higher prices.
Politics played a smaller role than in previous surveys. The sentiment was down across all political affiliations.
