Consumer sentiment about the economy got worse in March

Consumer sentiment has taken a significant hit since the start of 2025. The University of Michigan Consumer Sentiment Index fell for the third consecutive month in March and reached a concerning low.

The overall sentiment index dropped by a staggering 12% since February, signaling growing unease about the economic outlook.

The most alarming aspect of the decline is the 18% fall in the expectations index, which has now dropped by over 30% since November 2024. This widespread pessimism cuts across all demographics and political affiliations, with Republicans, Democrats, and Independents all expressing increasing concerns about their personal finances, business conditions, unemployment rates, and rising inflation.

A key driver of this pessimism is the escalating fear of job losses. A troubling two-thirds of consumers now anticipate a rise in unemployment within the next year, marking the highest reading since 2009. This trend poses a significant vulnerability, as strong labor markets have been a critical pillar supporting consumer spending in recent years.

As the chart below shows, sentiment hasn’t been this low since 2022, when inflation peaked at 9%.

Worries about inflation

Adding to the economic woes, inflation expectations are surging. Year-ahead inflation predictions have jumped from 4.3% in February to 5.0% in March, the highest since November 2022. This marks three consecutive months of unusually large increases, each exceeding 0.5 percentage points. Long-run inflation expectations have also climbed, rising from 3.5% to 4.1%.

The press release highlighted that the inflation increase is not a partisan issue, with all political groups seeing the rise in expected inflation. The overall trends are heavily influenced by the views of Independents, indicating that the decline is not simply a result of political polarization.

"Consumers are clearly worried about the potential economic pain stemming from ongoing policy developments," Joanne Hsu, director of surveys at the University of Michigan, said in a statement. “The confluence of rising inflation and fears of increased unemployment has created a climate of uncertainty, leading to a significant erosion of consumer confidence.”

Economists are now closely monitoring these trends, as sustained declines in consumer sentiment can have a ripple effect throughout the economy, potentially impacting spending and overall economic growth.