Consumer sentiment experienced a significant downturn in March, as worries escalated over inflation and the slumping stock market. This information comes from the latest sentiment survey conducted by the University of Michigan, which was released on Friday. The mid-month reading stood at 57.9, reflecting a 10.5% decline from February and falling short of the Dow Jones consensus estimate of 63.2. Notably, this reading marks a staggering 27.1% decrease compared to the same period last year and is the lowest level recorded since November 2022.
While the current conditions index saw a more moderate drop of 3.3%, the expectations measure for the future took a more substantial hit, decreasing by 15.3% on a monthly basis and 30% from the same period in 2024. This growing concern over future economic conditions aligns with rising fears about the trajectory of inflation, especially in light of President Donald Trump’s new tariffs against U.S. trading partners.
The one-year inflation outlook surged to 4.9%, an increase of 0.6 percentage points from February, marking the highest level since November 2022. Meanwhile, the five-year inflation outlook also rose to 3.9%, reflecting an increase of 0.4 percentage points and reaching its highest point since February 1993.
The survey has historically shown disparities in sentiment based on political affiliation; however, survey officials noted that this month, consumer sentiment has declined across all partisan lines and demographics. Many respondents expressed concerns about the high level of uncertainty surrounding economic policy and other financial factors. Joanna Hsu, the survey director, remarked that frequent fluctuations in economic policies complicate future planning for consumers, regardless of their policy preferences.
Interestingly, consumers across all three major political affiliations reported a weakened outlook since February. The expectations fell by 10% among Republicans, 24% among Democrats, and 12% among independents, according to Hsu’s analysis. Overall, consumer sentiment has plummeted by 22% since December.
The sentiment regarding inflation appears to contradict recent reports indicating that consumer prices rose less than anticipated, while wholesale prices remained flat in February. Market expectations suggest that the Federal Reserve, which is targeting a 2% inflation rate, is likely to maintain current interest rates when it concludes its two-day meeting on Wednesday. However, traders are factoring in potential interest rate cuts of 0.75 percentage points by the end of the year, beginning in June, according to the CME Group’s futures pricing gauge.
In summary, the decline in consumer sentiment amid rising inflation concerns and stock market instability underscores the challenges facing the economy. As consumers navigate this turbulent landscape, the implications for both short-term and long-term financial planning remain significant.
