Consumer sentiment dropped nearly five percent in February, an eight-month low and the largest monthly decline since January 2021. That’s according to the recent University of Michigan’s Survey of Consumers.
Inflation expectations surged following Trump’s January 31 announcement of tariffs on China, Mexico and Canada. Though these tariffs were suspended quickly, inflation expectations remained high as consumers braced for more, according to Joanne Hsu, director of the University of Michigan’s Survey of Consumers.
“Consumers are aware about the news around tariffs, even amid all the other news that's happening in the country and in the world right now, and specifically when we look at the major events over the last couple of months related to tariffs, including that announcement of tariffs against China, Mexico and Canada,” Hsu told Stateside. “Inflation expectations immediately jumped up and then stayed high.”
In the past month, grocery and gasoline prices have driven inflation, with already record high egg prices set to climb even higher, according to the Department of Agriculture.
Consumers’ concern extends further than egg prices or food, Hsu said. Consumers’ willingness to purchase long-lasting goods dropped 19%, which declines overall consumer spending. Simultaneously, consumer responses show expectations for personal finances and the economy in the next few months have declined almost 10% in February, survey results found. Respondents’ economic long-term outlook is the lowest it has been since November 2023.
More than half of survey respondents expect employment rates to rise, the highest rate since the pandemic recession.
After six months of increased confidence, these results mark the second time a month-over-month report shows a decline in consumer confidence.
“This is an unusually large and widespread, pervasive decline that we're seeing right now,” Hsu said.
Overall feelings toward the economy, across all demographic groups, decreased for both Democrats and Independents, while Republicans’ sentiment remained consistent. This pattern typically follows whichever party is in charge, which emphasizes the importance of watching Independents.
“When the White House changes hands, you see the two parties rotate around Independents, but the national average is pretty much spot on,” Hsu said.
The two-month inflation increase for the long run is the first since 2008, when inflation expectations followed an oil price shock. Now, consumers’ expectations are a response to anticipated policies, Hsu said.
“At that time…there was a huge oil price shock. And then the inflation expectations came down when oil prices came down as well,” Hsu said. “But right now, people aren't responding to a specific price or to the price of gas. They're really anticipating price hikes resulting from policies in the future.”
In the spring months, Hsu said that as an economist, she’ll be monitoring inflation expectations. The upcoming monthly Survey of Consumers will be published in March.
Background Reading:
- Consumer Sentiment Index
- Consumer sentiment drops as inflation worries escalate | University of Michigan News
Hear the full conversation with Joanne Hsu on the Stateside podcast.
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