Ann Arbor Times

Consumer sentiment has experienced a significant decline, dropping nearly 10% from January, marking the second consecutive month of decreases. This downturn was observed across all demographic groups, with notable declines in each component of the sentiment index. The most substantial drop was a 19% decrease in buying conditions for durables, attributed to concerns over potential tariff-induced price hikes, according to Joanne Hsu, director of the University of Michigan’s Surveys of Consumers.

Expectations for personal finances and short-term economic outlook both fell by almost 10% in February. The long-term economic outlook also decreased by about 6%, reaching its lowest level since November 2023. Sentiment among Democrats and Independents declined, while it remained unchanged for Republicans, highlighting ongoing political disagreements regarding new economic policies.

"Consumers’ expectations for the path of inflation worsened considerably this month; they are clearly bracing for a resurgence in inflation," Hsu noted. She added that although an increase in inflation expectations is not immediately concerning, persistent views could pose challenges for policymakers. Consumers generally anticipate that tariff hikes will lead to higher inflation but acknowledge that policy uncertainty might alter their perceptions.

Tariff-related news—ranging from trade rhetoric to concrete policy announcements from the White House—has significantly impacted consumer perspectives. Approximately 40% of consumers mentioned tariffs spontaneously, up from 27% last month and less than 2% before the election. Consumers are incorporating these economic policy developments into their broader economic expectations.

Following a January announcement about tariffs on China, Canada, and Mexico, year-ahead inflation expectations surged. Although North American tariffs were suspended shortly after, subsequent announcements kept inflation expectations elevated.

Multiple economic factors have fueled consumer unease about the upcoming year, creating headwinds for sentiment and spending. More than half of consumers foresee rising unemployment within the next year—the highest share since the pandemic recession.

The deterioration in views on personal finances was widespread this month as nearly 40% of consumers cited high prices as eroding their living standards. Despite a majority expecting income growth, only 16% anticipate income gains outpacing inflation—a further indication of concern over future price trends.

The Consumer Sentiment Index fell to 64.7 in February's survey from January's 71.7 and last February's 76.9. The Current Index dropped to 65.7 from January's 75.1 and last February's 79.4; the Expectations Index decreased to 64.0 from January's 69.5 and last February's 75.2.

The Surveys of Consumers is conducted by the University of Michigan Institute for Social Research through a nationally representative sample across the contiguous United States via web interviews throughout each month.