Consumer sentiment falls nearly 10% as concerns about inflation, tariffs escalate
The new year has seen the mood of U.S. consumers turn sour over rising concerns about inflation, tariffs and unemployment.
U.S. consumer sentiment declined for the second consecutive month in February, falling 9.8% to 64.7, according the University of Michigan’s Index of Consumer Sentiment. It’s the lowest level since November 2023. Year-over-year, consumer sentiment was down 15.9%.
The decrease was unanimous across groups by age, income, and wealth, noted Joanne Hsu, surveys of consumers director.
“All five index components deteriorated this month, led by a 19% plunge in buying conditions for durables, in large part due to fears that tariff-induced price increases are imminent,” she said.
The index of current economic conditions declined 12.5% to 65.7% in February from January, and was down 17.3% year over year. Looking ahead, the consumer expectations index fell 7.% month-over-month, and was down 14.9% year-over-year.
“Expectations for personal finances and the short-run economic outlook both declined almost 10% in February, while the long-run economic outlook fell back about 6% to its lowest reading since November 2023,” Hsu said.
Inflation & Tariffs
Year-ahead inflation expectations jumped up from 3.3% last month to 4.3% this month, the highest reading since November 2023 and marking two consecutive months of “unusually large” increases, according to Hsu. The current reading is now well above the 2.3-3.0% range seen in the two years prior to the pandemic.
Long-run inflation expectations rose over the course of the month and climbed from 3.2% in January to 3.5% in February. This is the largest month-over-month increase seen since May 2021.
“For both short- and long-run inflation expectations, this month’s increases were widespread and seen across income and age groups,” Hsu said. “Inflation expectations rose this month for Independents and Democrats alike; they fell slightly for Republicans.”
News about tariffs appear to be filtering down to consumers. About 40% of consumers spontaneously mentioned tariffs, up from 27% last month and less than 2% prior to the election, Hsu said. More importantly, consumers appear to be folding economic policy developments into their expectations on the trajectory of the economy.
Personal Finances
Consumers expressed unease about multiple economic factors for the year ahead, providing headwinds for consumer sentiment and spending. More than half of consumers expect unemployment to rise in the year ahead, the highest share since the pandemic recession.
Views of personal finances broadly deteriorated this month as well, with almost 40% of consumers blaming high prices for eroding their living standards. Although a majority of consumers expect their incomes to rise, only 16% expect their income gains to outpace inflation, yet another sign of their worries over the trajectory of prices.
About the surveys
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.
Interviews are conducted throughout the month by web. 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 six points.
