At a Glance

  • A consumer survey released by the University of Michigan on Friday showed that consumer sentiment fell more than expected this month, with long-term inflation expectations rising at the fastest pace since 1993, mainly due to concerns about resurgent price pressures triggered by tariffs and other Trump administration policies.
  • The university said in a press release that consumer sentiment fell 11% month-over-month in March, bringing the cumulative decline to 22% since December. Sentiment weakened broadly across age, education, income, wealth, region, and political affiliation, with the overall level falling to its lowest since 2022.
  • "This is a terrible report," Pantheon Macroeconomics Chief Economist Samuel Tombs said in a note to clients. "High economic policy uncertainty and a sharp stock market selloff have severely undermined consumer confidence."

Deeper Dive

Federal Reserve officials will hold their monetary policy meeting on March 18-19, where they may focus on the shift in the University of Michigan survey's five-to-ten-year inflation expectations, which rose to 3.9% this month from 3.5% in February. Policymakers closely monitor consumers' long-term expectations about price pressures, worried that inflation expectations could become self-fulfilling.

"We are closely monitoring a range of inflation expectation indicators, and some short-term indicators have risen recently," Fed Chair Jerome Powell said in a speech on March 7. He noted that "both consumers and businesses are citing tariffs as one of the driving factors." But he added, "However, beyond the next year, most longer-term expectation measures remain stable and consistent with our 2% inflation target."

Powell signaled that the Fed may hold its benchmark interest rate steady at the upcoming meeting, confirming that policymakers want to see sustained progress on prices before considering lowering borrowing costs.

Beyond price pressures, multiple factors weakened consumer expectations, according to the University of Michigan survey. "Although current economic conditions have changed little, expectations for the future deteriorated across personal finances, the labor market, inflation, the business environment, and the stock market," Joanne Hsu, the survey's director, said in a statement. "Many consumers mentioned the high degree of uncertainty surrounding policies and other economic factors; frequent policy volatility makes it difficult for consumers to plan ahead, regardless of their policy preferences," she noted.

Hsu said sentiment weakened among Republicans, Democrats, and independents alike. "Despite post-election confidence gains, the expectations index for Republicans still fell sharply by 10% in March." She also noted that one-year inflation expectations jumped to 4.9% in March from 4.3% last month, the highest level since November 2022. One-year inflation expectations have now risen by 0.5 percentage points or more for three consecutive months.

Tombs said the University of Michigan's first-quarter consumer expectations index declined, suggesting that first-quarter consumption growth could slow to 1.5% year-over-year from 3.2% in the fourth quarter. "The March data alone points to even slower growth—just 0.5%," he said. He cautioned that "soft data" such as consumer sentiment can fluctuate month to month and may not move in tandem with spending.

However, Robert Frick, corporate economist at Navy Federal Credit Union, believes recent consumer surveys may signal an impending pullback in spending. "Generally, swings in consumer confidence and sentiment indicators do not reflect actual purchasing behavior, but recently both have fallen sharply, and combined with other factors, this points to a potential slowdown in spending," he said in an email. "We are also seeing a rise in the savings rate, which is a defensive indicator; retailers are also predicting consumers will tighten their belts. As the University of Michigan survey noted, uncertainty over presidential policies is making consumers nervous and making it difficult for them to plan ahead," he added.