Consumer sentiment has fallen for the fourth consecutive month, plunging 11% to 50.8 in April – the second-lowest reading since records began in 1952, according to the University of Michigan.
The April reading is now lower than anything seen during the Great Recession. It marks more than a 30% drop since December 2024 and likely reflects growing concerns over President Trump’s volatile trade policies and fears of rising inflation. However, it’s important to note that the survey was conducted between March 25 and April 8, before Trump’s April 9 announcement to roll back some tariffs partially.
Factors Influencing Sentiment
Americans’ inflation expectations have surged dramatically, with year-ahead expectations jumping to 6.7% from 5.0% last month – the highest reading since 1981. Long-term inflation expectations also climbed from 4.1% to 4.4%. This marks four consecutive months of an unusually large increase in inflation expectations.
Meanwhile, labor market confidence, which has been a bright spot supporting consumer spending for several years, deteriorated significantly. The share of consumers expecting unemployment to rise has increased for the fifth consecutive month, now more than double the November 2024 reading and at its highest level since 2009.
Economic Implications
The Federal Reserve is watching closely to see if this declining sentiment will translate into reduced consumer spending, which accounts for about 70% of the US economy. So far, the “soft data” of surveys has shown apparent deterioration, while “hard data” like retail sales have remained relatively stable, though recent numbers have come in weaker than expected.
The combination of rising prices, labor market concerns, and stock market turbulence creates what economists call a risk of “stagflation” – a dangerous mix of stagnating growth with rising inflation.
With sentiment now at its second-lowest level in recorded history, economists will be closely monitoring whether Americans’ spending habits finally begin to reflect their growing pessimism about the economy’s direction.
Key Takeaways
The sharp decline in consumer sentiment, driven by trade war fears and inflation worries, signals potential headwinds for the economy. The marked decrease highlights a complex economic landscape where consumers are grappling with uncertainty. While retail sales have shown resilience, the downturn in sentiment could eventually curb spending, a crucial component of economic growth. Moving forward, economists will be monitoring these trends and how they might influence economic policies and consumer behavior.