Consumer sentiment declined more sharply than anticipated in April, with inflation expectations reaching their highest point since 1981, according to the latest University of Michigan survey released on Friday.
The survey’s mid-April consumer sentiment index plummeted to 50.8, down from 57.0 in March, falling significantly below the Dow Jones forecast of 54.6. This represents a 10.9% decrease month-over-month and a staggering 34.2% decline compared to the same month last year, marking the lowest level since June 2022 and the second-lowest in the survey’s history dating back to 1952.
Accompanying this drop in sentiment were rising concerns about inflation.
Respondents’ inflation expectations for the coming year surged to 6.7%, the highest since November 1981, and up from 5% in March. Looking further ahead, expectations for inflation over the next five years rose to 4.4%, representing a 0.3 percentage point increase from the previous month and the highest since June 1991.
Additional indicators within the survey also pointed to a worsening outlook.
The current economic conditions index decreased to 56.5, a decline of 11.4% from March, while the expectations index dropped to 47.2, down 10.3% and reaching its lowest level since May 1980. Year-over-year, the two measures have fallen by 28.5% and 37.9% respectively.
Following the release of this report, stock markets turned negative and Treasury yields increased.
“Consumers have transitioned from anxious to petrified,” commented Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics.
“Consumers are indicating multiple warning signs that raise the risk of recession: expectations regarding business conditions, personal finances, incomes, inflation, and labor markets all continue to deteriorate this month,” Hsu added.
Moreover, the survey highlighted rising fears of unemployment, which have reached levels not seen since 2009.
This survey emerges amid rising concerns that President Donald Trump’s tariffs could elevate inflation and impede economic growth, with several prominent Wall Street figures and economists predicting that the U.S. may be on the brink of recession within the next year.
However, it’s important to note that the survey’s findings contrast with market-based expectations, which suggest limited concerns about future inflation. Despite this, Federal Reserve officials have recently expressed worries that consumer expectations could transform into reality if behaviors change. Recent consumer and producer inflation metrics indicated a slowdown in price pressures during March.
Additionally, the responses in the University of Michigan survey were collected between March 25 and April 8, concluding just one day before Trump announced a temporary 90-day hold on aggressive tariffs affecting numerous U.S. trading partners.
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