Ann Arbor Times

Consumer sentiment has decreased for the first time in six months, dropping by 4% from December. Economist Joanne Hsu, director of the University of Michigan’s Surveys of Consumers, noted that while personal finance assessments have improved for the fifth month in a row, both short- and long-term business outlooks have weakened in January.

The decline in sentiment was widespread across various income, wealth, and age groups. Although buying conditions for durable goods softened, they remained about 30% stronger than six months ago due to ongoing beliefs that purchasing now could avoid future price hikes.

The data collection concluded on Inauguration Day. According to Hsu, consumers will continue to adjust their views as President Trump’s policies become clearer and are implemented. “Survey responses make clear that the recent partisan divergence in confidence in the economy is rooted in how consumers view Trump’s proposed policies,” she said.

Hsu explained that some consumers think these policies, such as tariffs, will significantly slow inflation. Others believe Trump's policies might cause inflation to rise again, prompting them to buy now to avoid higher prices later. This behavior is reflected in strong spending data for vehicles and retail sales.

When asked specifically about tariffs, around 19% of consumers felt higher tariffs would benefit the economy, while 62% preferred lower tariffs. The remaining 19% believed tariffs would not significantly impact the economy.

Hsu pointed out that those who support higher tariffs expect stronger economic growth and lower inflation compared to those favoring lower tariffs or believing tariff policy has little effect. These trends indicate that consumers anticipate Trump will increase tariffs and have adjusted their economic expectations accordingly.

This month saw an improvement in personal finance assessments due to stronger incomes; however, there are concerns about potential labor market weakening. In January, worries about unemployment increased with approximately 47% of consumers expecting a rise in unemployment over the next year—the highest level since the pandemic recession.

Expectations for personal income growth over the coming year also weakened this month.

The Consumer Sentiment Index dropped to 71.1 in January 2025 from December's 74.0 and below last January's figure of 79.0. The Current Index fell to 74.0 from December's 75.1 and below last January's 81.9. The Expectations Index decreased to 69.3 from December's 73.3 and below last January's figure of 77.1.

The Surveys of Consumers is conducted by the University of Michigan Institute for Social Research using a rotating panel survey based on a nationally representative sample across the contiguous United States with equal selection probability for each household. Interviews are conducted online throughout each month with significant changes at a minimum threshold of 4.8 points for the Sentiment Index and six points for both Current and Expectations Indexes at a confidence level of 95%.