Consumer sentiment in the United States took a significant hit in February, as reflected by the University of Michigan consumer survey. The current conditions index slumped to 68.7, marking a 7.2% drop from January and a 13.5% decline compared to the same period last year. This decline highlights heightened concerns over potential price pass-throughs to consumers, stemming from ongoing tariff disputes. The overall sentiment reflects a growing perception that it might be too late to avert the adverse effects of current tariff policies.
The survey revealed a notable decline in expectations, which fell to 67.3, representing a 2.9% drop from the previous month and a 10.5% decrease from a year ago. Respondents expect inflation to hit 4.3% a year from now, a one percentage point increase since January, marking the highest inflation expectation since November 2023. This rise in inflation expectations aligns with lower overall optimism, as the headline index dropped to 67.8, a fall of 4.6% from January and an 11.8% decrease year-over-year.
"Many consumers appear worried that high inflation will return within the next year," – Joanne Hsu
This is only the fifth instance in 14 years that the survey has observed such a substantial one-month increase in year-ahead inflation expectations. Economists surveyed by Dow Jones had anticipated a reading of 71.3, indicating that the actual index fell short of expectations. According to Joanne Hsu, the survey's director, many consumers are increasingly apprehensive about inflationary pressures resurfacing within the upcoming year.
"a perception that it may be too late to avoid the negative impact of tariff policy." – Joanne Hsu
The five-year outlook showed a slight increase to 3.3%, reflecting a modest gain of 0.1 percentage points. The survey indicated that consumers are increasingly concerned about near-term inflation, exacerbated by President Donald Trump's aggressive tariff measures against major U.S. trading partners. In response, China has imposed retaliatory tariffs, further fueling economic uncertainty.