The consumer confidence measures were devised in the late 1940s by Professor George Katona at the University of Michigan. They have now developed into an ongoing, nationally representative survey based on telephonic household interviews. The Index of Consumer Expectations (a sub-index of ICS) is included in the Leading Indicator Composite Index published by the U.S. Respondents could enter approximate numbers for current and 2019 income levels, or skip these questions to provide a rough estimate in percent changes of how much their household income changed between 2019 and 2024.
This situation similarly occurred during the inflationary episodes of the 1970s and early 1980s. Most respondents felt their annual income did not keep instaforex review up with their spending but recall that consumers tend to over-estimate the extent of retail price inflation they experienced. Only 23 percent of respondents reported that their incomes grew at the same rate or faster than their spending. The more consumers said their income did not keep up with spending, the greater the share who said they were doing worse or much worse in today’s economy compared with 2019.
Consumer sentiment fell for the fourth straight month, plunging 8% from March and reaching its lowest reading since July 2022. This week, by contrast, the investment firm Vanguard predicted prices will rise nearly 4% in 2025. The Consumer Sentiment Index fell to 52.2 in the April 2025 survey, down from 57.0 in March and below last April’s 77.2.
“In our models, they foreshadow economic contraction ahead and a recession will give the Fed something to think about.” The share of respondents expecting unemployment to rise in the coming months increased for the fifth straight month and is now the highest since 2009, during the Great Recession. The last time inflation expectations ran that high was in 1981, toward the end of a historic period of high prices, remembered by the Federal Reserve as The Great Inflation. But as the right panel canadian forex review of Figure 6 shows, respondents who said they took on additional jobs or now regularly work more hours per week were more likely to say they were doing worse. The Consumer Sentiment Index gives a glimpse as to how consumers are feeling about spending and their future expectations for the economy.
Notes
Gain an edge with CNBC Pro LIVE, an exclusive, inaugural event at the historic New York Stock Exchange. In addition to the other readings, the survey showed unemployment fears rising to their highest since 2009. “Consumers have spiraled from anxious to petrified,” wrote Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics. Capital One Shopping gets you better offers, automatically applies the best coupon code at checkout, and lets you know when prices drop on products you’ve viewed and purchased.
Consumer sentiment tumbles in April as inflation fears spike, University of Michigan survey shows
- The Surveys of Consumers is a rotating panel survey at the University of Michigan Institute for Social Research.
- The survey comes amid concerns that President Donald Trump’s tariffs will raise inflation and slow growth, with some prominent Wall Street executives and economists expecting the U.S. could teeter on recession over the next year.
- Although sentiment improves with higher incomes, the more people said they had to make changes to their behaviors since 2019 to reduce spending, the worse is their sentiment.
- Consumer sentiment fell for the fourth straight month, plunging 8% from March and reaching its lowest reading since July 2022.
People’s negative sentiment seems to be driven by the perception that incomes have not kept up with prices, even though real spending has increased, and by the effort they exerted to adapt to rising prices. Although sentiment improves with higher incomes, the more people said they had to make changes to their behaviors since 2019 to reduce spending, the worse is their sentiment. Moreover, those who experienced increases in their incomes still reported negative sentiment, citing the need to work more hours or take on additional jobs to earn extra income. This situation may reverse as inflation continues to decline or if the labor market weakens. Figure 1 plots three lines from the University of Michigan’s Survey of Consumers.
Tracking consumer sentiment versus how consumers are doing based on verified retail purchases
While it is important to recognize how consumers feel, we should exercise caution when using consumer sentiment surveys to infer future consumer behavior given this recent disconnect between what consumers say and do. Consumer confidence has plummeted in recent months, Michigan researchers report, amid spiraling fears about President Donald Trump’s campaign of import tariffs. The university’s index of consumer sentiment fell to 50.8 in April from 57 in March. The Trimmed Mean PCE inflation rate produced by the Federal Reserve Bank of Dallas is an alternative measure of core inflation in the price index for personal consumption expenditures (PCE). The data series is calculated by the Dallas Fed, using data from the Bureau of Economic Analysis (BEA).
Over the past few years, there has been a change in how overall consumer sentiment corresponds with sentiment regarding incomes and prices. Usually, consumer sentiment moves closely with sentiment regarding income growth. coinbase exchange review More recently, sentiment has been moving closely with sentiment regarding price levels. The White House responded to the sagging consumer confidence figures by noting the latest monthly inflation report, which showed prices easing in March.
Of those who reported their incomes went up less than prices, 65 percent said they felt worse or much worse in 2024 compared with 2019. On average, respondents felt the prices they paid have increased more than their incomes, and they feel worse or much worse than they did in 2019. The survey’s mid-month reading on consumer sentiment fell to 50.8, down from 57.0 in March and below the Dow Jones consensus estimate for 54.6. The move represented a 10.9% monthly change and was 34.2% lower than a year ago. It was lowest reading since June 2022 and the second lowest in the survey’s history going back to 1952. “The bond market doesn’t believe tariffs will cause persistently higher inflation, but consumers are less convinced,” said Sweet.
- The consumer confidence measures were devised in the late 1940s by Professor George Katona at the University of Michigan.
- Critically, these consumers generally expect tariffs to generate substantial upward pressure for inflation in the future and to weaken the outlook for economic growth as well.
- As recently as December, consumers expected an annual inflation rate of 2.8%.
- This situation may reverse as inflation continues to decline or if the labor market weakens.
Releases
We have shown that sentiment deteriorates as changes in spending outpace changes in income. But people are not only spending more – we adjust for inflation – they are buying and consuming more in 2024 compared with 2019. To be sure, the survey’s readings are generally counter to market-based expectations, which indicate little worry of inflation ahead. However, Federal Reserve officials in recent days say they fear that consumer expectations can quickly become reality if behavior changes. Consumer and producer inflation readings this week showed price pressures easing in March. “Today’s figures raise more red flags about consumer spending in the weeks and months ahead,” the economists said.
The University of Michigan’s closely watched consumer sentiment index, released Friday, fell 11% to 50.8, the lowest since the depths of the pandemic. 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. 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 6 points.
Also, the University of Michigan survey included responses between March 25 and April 8, the end period coming the day before Trump announced a 90-day stay on aggressive tariffs against dozens of U.S. trading partners. Sentiment declines came across all demographics, including age, income and political affiliation, according to Joanne Hsu, the survey’s director. Respondents’ expectation for inflation a year from now leaped to 6.7%, the highest level since November 1981 and up from 5% in March. At the five-year horizon, the expectation climbed to 4.4%, a 0.3 percentage point increase from March and the highest since June 1991. The decline was “pervasive and unanimous across age, income, education, geographic region, and political affiliation,” said Joanne Hsu, director of the survey.
Consumer sentiment fell to historic lows in mid-2022, lower than during the Great Financial Crisis and during the depths of the pandemic. In late-2024, consumer sentiment remained substantially lower than pre-pandemic levels. Historically, consumer sentiment moves in tandem with concerns regarding lower income and higher prices on household finances, and sharp drops in consumer sentiment tend to precede or coincide with recessions. This time, the sustained drop in consumer sentiment following the pandemic has not preceded or coincided with a recession. Perhaps one of the reasons for this anomaly is that the link between overall consumer sentiment and sentiment regarding income seems to have broken in mid-2022, which is evident in the inset box that shows the series from 2019 onwards. Since mid-2022, consumer sentiment has been moving more closely with sentiment regarding higher prices than with sentiment regarding income.
Calculating the trimmed mean PCE inflation rate for a given month involves looking at the price changes for each of the individual components of personal consumption expenditures. The individual price changes are sorted in ascending order from “fell the most” to “rose the most,” and a certain fraction of the most extreme observations at both ends of the spectrum are thrown out or trimmed. The inflation rate is then calculated as a weighted average of the remaining components. The resulting inflation measure has been shown to outperform the more conventional “excluding food and energy” measure as a gauge of core inflation.
Consumer sentiment grew even worse than expected in April as the expected inflation level hit its highest since 1981, a closely watched University of Michigan survey showed Friday. The University of Michigan’s Consumer Sentiment Index provides a month-to-month measurement of U.S. consumer confidence dating back to the mid-20th Century. According to Sweet, consumers’ perception of inflation has historically been driven by food and gasoline prices, as opposed to U.S. trade policies. “Tariffs and the drop in equity prices are not sitting well with consumers,” said Ryan Sweet, chief U.S. economist at Oxford Economics, in a note. “I think there’s a great optimism in this economy,” said White House press secretary Karoline Leavitt, when asked about consumer survey. She noted President Trump’s earlier comment that Americans should expect a period of “transition” as he seeks to renegotiate trade deals with countries across the world.
Nearly two-thirds of consumers expect unemployment to rise in the year ahead, more than double the reading from six months ago. In an alarming development, consumers are increasingly worried that their income prospects may be worsening as well, Hsu said. Critically, these consumers generally expect tariffs to generate substantial upward pressure for inflation in the future and to weaken the outlook for economic growth as well. While consumers may have seen the April 9 announcement of a partial pause on tariff increases as a positive development, the announcement was not enough to settle consumers’ concerns over the potential impact of trade policy on the economy, Hsu said.