March Consumer Sentiment Plummets Amid Rising Inflation Fears and Economic Uncertainty
In March, consumer confidence sharply declined as inflation expectations surged and concerns over the labor market and future business conditions intensified, reflecting growing economic unease.
Highlights
- The Michigan Consumer Sentiment Index dropped 12% in March compared to February, driven by heightened anxiety over tariff policies and economic outlook.
- Inflation expectations climbed, with consumers increasingly worried about job security and the business environment ahead.
- These findings align with other recent surveys and coincide with reports indicating a pullback in consumer spending.
Consumer optimism took a significant hit in March, as worries extended beyond tariff-related issues to encompass labor market instability, personal financial challenges, and uncertain business prospects.
The Michigan Consumer Sentiment Index registered at 57 in March, marking a 12% decrease from February and continuing its downward trend for the third consecutive month. Persistent concerns about rising prices linked to tariff policies were a major factor, affecting all demographic and political groups.
"Ongoing economic policy developments are fueling consumer apprehension about potential financial hardships," stated Joanne Hsu, Director of Michigan Surveys of Consumers.
Tariff-Induced Inflation Expectations Reach New Heights
This latest consumer survey, the second this week, underscores deteriorating economic perceptions following Tuesday's drop in consumer confidence.
Both surveys suggest that tariffs, which economists warn may increase costs, are adding pressure on consumers already strained by elevated prices. The Michigan survey revealed that consumers now anticipate inflation to hit 5% over the next year—the highest forecast since 2022.
"Inflation has re-emerged as a critical concern influencing household spending decisions in the near term," explained Jim Baird, Chief Investment Officer at Plante Moran Financial Advisors.
Growing Consumer Anxiety Over Jobs and Financial Stability
The report also highlights rising concerns about the labor market, with two-thirds of respondents expecting unemployment to increase over the coming year—the highest level since 2009.
"This signals a major vulnerability, as strong employment and income levels have been key drivers of consumer spending," Hsu added.
The expectation index also saw a sharp decline, reflecting heightened worries about personal finances and future business conditions. This sentiment downturn coincides with recent data showing a reduction in consumer spending in February.
"Economic risks are mounting as weak consumer sentiment follows disappointing income and spending figures. Our concern that soft data would impact broader economic indicators appears to be materializing," noted Oren Klachkin, Financial Market Economist at Nationwide.
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