Consumer Sentiment Drops as Inflation Expectations Jump
A resurgence in fuel prices and renewed trade tensions drives sentiment below every forecast.
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Sentiment: 47.8 (estimate 51.0; prior 51.7)
Current Conditions: 50.9 (estimate 51.3; prior 51.9)
Expectations: 45.8 (estimate 51.0; prior 51.5)
1-Year Inflation: 4.6% (estimate 4.2%; prior 4.0%)
5-10 Year Inflation: 3.4% (estimate 3.3%; prior 3.3%)
I didn’t have time Friday so thought I’d do a quick post on the University of Michigan consumer sentiment report as it had some interesting items.
The preliminary read of for September released Friday fell 7.5% to 47.8, the second consecutive monthly decline below every estimate in a Bloomberg survey of economists (51.0 expected), down from August’s 51.7, and just 3 points above the all-time low from May. The survey period ran August 25 to September 7.
Almost all of the drop was due to a collapse in the forward-looking piece as the expectations index (green line) plunged 11.1% to 45.8, just off the record lows set earlier this year. In that regard, views about the economy in the year ahead deteriorated to the lowest reading since July 2022, according to Bloomberg. In contrast, current conditions (blue line) held up far better, easing only 1.9% to 50.9. One relative bright spot — five-year expected business conditions held stable, if at readings well below their historical average, which Hsu read as a sign “that consumers believe that emerging risks this month may not have further worsened the long-run outlook.”
The pocketbook remains the epicenter
Per Hsu, “year-ahead expectations for both personal finances and business conditions plunged” as “with a resurgence in fuel prices and trade tensions, consumers anticipate greater pressures on their pocketbooks to come.” Consumers’ perception of both their current and future financial situation fell, per Bloomberg.
Sentiment deteriorated across the aisle
Surveys of Consumers Director Joanne Hsu noted that “Democrats and Republicans alike” posted sizable declines while independents were little changed from August. Overall, per Hsu, sentiment is now 16% below February, just prior to the start of the Iran conflict, and 13% lower than a year ago.
Hsu also noted “Opinions of the government’s economic policy worsened about 10% this month and remain substantially below February 2026, just prior to the Iran conflict. Notably, even Republicans, who generally supported economic policy under the current administration, have exhibited a marked decline in favorability.” Bloomberg reported that only 35% of Republicans believe the government is doing a good job with the economy, the lowest reading since President Donald Trump returned to the White House last year.
Inflation expectations jumped
On inflation, per Hsu: “Year-ahead inflation expectations [blue line] jumped from 4.0% last month to 4.6% this month, the highest reading since June. The current reading substantially exceeds the 3.4% seen in February before the Iran conflict began, along with all 2024 readings.” Notably, for the first time since 2023, a majority of consumers expect interest rates to rise in the year ahead as the Federal Reserve moves to curb inflation according to Bloomberg.
Long-run five-to-10-year expectations (red line) ticked up to 3.4%, ending three consecutive months at 3.3%, and remain above the 2.8% to 3.2% range seen in 2024 and the sub-2.8% readings in 2019 and 2020. The prior peak was 4.4% in April 2023.
The final September read is due Friday, September 25.
Find more: University of Michigan Surveys of Consumers
