Consumer Sentiment Tumbles in April as Inflation Fears Spike, University of Michigan Survey Shows


Consumer Sentiment Tumbles in April as Inflation Fears Spike, University of Michigan Survey Shows

By Steven Orlowski, CFP, CNPR

U.S. consumer sentiment fell sharply in April as concerns over inflation and future economic conditions intensified, according to preliminary data released Friday by the University of Michigan.

The university’s closely watched Index of Consumer Sentiment dropped to 77.9 in early April from 79.4 in March, marking the first decline in sentiment since November 2023. Economists had expected a modest improvement, with most forecasts hovering near 80.

The decline comes amid growing anxieties about persistent price pressures and expectations that interest rates may remain elevated longer than previously anticipated. While inflation cooled significantly in 2023, recent data suggest a potential reacceleration, particularly in housing, energy, and services.

“Consumers are feeling the sting of stubborn inflation and uncertainty around the Fed’s path forward,” said Joanne Hsu, director of the survey. “The share of consumers expecting inflation to remain high over the next year ticked up, and their longer-run expectations also crept higher.”

Inflation Expectations Edge Up

One-year inflation expectations rose to 3.1% in April from 2.9% in March, while five-year expectations increased slightly to 3.0%, the highest reading since November. These rising expectations are closely watched by the Federal Reserve, which has repeatedly stressed the importance of anchoring long-term inflation beliefs.

The uptick in inflation forecasts is likely linked to recent consumer price index (CPI) reports, which showed headline inflation at 3.5% in March, up from 3.2% in February. Core inflation, which excludes volatile food and energy costs, remained elevated at 3.8%.

Fed Policy Uncertainty Weighs on Outlook

The Federal Reserve has kept interest rates at a 23-year high since July 2023, and markets had widely anticipated rate cuts beginning as early as May. But stronger-than-expected inflation data have led many analysts to push back their forecasts for easing.

“With inflation proving sticky and job growth still solid, the Fed may be forced to keep rates higher for longer,” said Sarah House, senior economist at Wells Fargo. “This increases borrowing costs for consumers and businesses and dampens overall sentiment.”

The University of Michigan’s survey also showed weakening perceptions of current economic conditions, which dropped from 82.5 in March to 79.3 in April. Expectations for the next six months also deteriorated, falling from 77.4 to 76.0.

Political Uncertainty Adds to Consumer Caution

Beyond inflation, the survey noted that political uncertainty ahead of the 2024 presidential election may also be contributing to consumer unease. Americans across political affiliations expressed increased concern about the direction of the economy, regardless of income level.

“While household finances remain relatively stable, the overall mood is one of caution,” Hsu said. “Consumers are hesitant to make major purchases or financial commitments.”

Conclusion

April’s downturn in consumer sentiment is a reminder that while the U.S. economy remains resilient, confidence is fragile—particularly when inflation fears resurface. If price pressures continue to climb and the Federal Reserve delays rate cuts, consumer behavior could shift, potentially slowing the pace of economic growth in the months ahead.

The final April reading from the University of Michigan survey will be released on April 26.

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