On April 11, 2025, the University of Michigan reported a significant decline in U.S. consumer sentiment, with its index dropping to 50.8 in early April from 57.0 in March. This marks the fourth consecutive monthly decrease and is the second-lowest reading on record, surpassed only by June 2022.
The decline in sentiment is attributed to escalating concerns over inflation and trade tensions. Year-ahead inflation expectations surged to 6.7%, the highest since 1981, while five-year expectations rose to 4.4%. These heightened expectations are largely driven by recent tariff increases, including President Trump’s decision to raise tariffs on Chinese goods to 125%, prompting retaliatory measures from China.
The downturn in consumer sentiment was widespread, affecting all demographic and political groups. Concerns about personal finances, business conditions, income, inflation, and the labor market have all contributed to the growing pessimism. Notably, the share of consumers expecting unemployment to rise in the year ahead has more than doubled since November 2024, reaching the highest level since 2009.
This sharp decline in consumer confidence has significant implications, as consumer spending accounts for approximately 70% of the U.S. economy. Economists warn that sustained pessimism could lead to reduced spending, potentially slowing economic growth and increasing the risk of recession.
In response to these developments, traders have adjusted their expectations for Federal Reserve interest-rate cuts, now anticipating a more cautious approach with a potential start in June. The Federal Reserve faces the challenge of balancing efforts to control inflation while supporting economic growth amid declining consumer confidence.