U.S. consumer sentiment deteriorated for a second consecutive month in early September, falling more than expected as rising fuel prices and trade tensions increased concerns about household finances and inflation.
The University of Michigan’s preliminary Consumer Sentiment Index fell to 47.8 in September from 51.7 in August, below economists’ expectations of 51.0. The reading was the weakest since May, when the index reached a record low.
Overall sentiment is now 16% below its February level, before the start of the Iran conflict, and 13% lower than a year earlier, according to the survey.
Household Finances and Business Outlook Weaken
Consumers reported worsening expectations for both their personal finances and business conditions over the coming year, reflecting concerns that higher fuel costs and continued trade tensions could put additional pressure on household budgets.
Longer-term views were comparatively more stable. Expectations for business conditions over the next five years changed little, although they remained well below their historical average.
The September decline follows a roughly 6% drop in August. Last month, survey director Joanne Hsu said consumers were increasingly concerned about persistent inflation, gasoline prices and weakening prospects elsewhere in the economy.
The deterioration was broad across political groups in the preliminary September survey, according to Reuters, with sentiment declining among both Republican and Democratic consumers while remaining relatively unchanged among independents.
Inflation Expectations Jump to 4.6%
Consumers’ expectations for inflation over the next year climbed sharply to 4.6% from 4.0% in August, reaching their highest level since June.
Long-term inflation expectations also edged higher. Consumers now expect inflation of 3.4% over the next five years, up from 3.3%, where the measure had remained for three consecutive months. The University of Michigan previously noted that the 3.3% August reading was already above the 2.8%-3.2% range recorded during 2024.
The increase in inflation expectations comes as energy prices continue to weigh on U.S. households. Separate government data released Friday showed annual consumer inflation holding at 3.4% in August, while gasoline prices increased 27.4% from a year earlier.
The combination of weaker consumer confidence and higher inflation expectations provides a mixed picture of the U.S. economy ahead of the Federal Reserve’s September 15-16 policy meeting. The latest sentiment figures point to growing pressure on household expectations even as recent labor-market data have remained relatively firm.
