Consumer Sentiment Weakens Amid Rising Inflation Expectations in April

Economic observers are paying attention to the state of the consumer.

People shop at a retail store in New York City, on March 21, 2025. Samira Bouaou/The Epoch Times

Intensifying economic and inflation concerns continued to weigh on U.S. consumer sentiment amid trade-related uncertainty.

The University of Michigan Consumer Sentiment Index, released on April 25, weakened for the fourth consecutive month in April, tumbling 8 percent from the previous month.

While respondents’ views of current economic conditions fell by more than 6 percent, their expectations tanked by 10 percent.

Despite the sharp decline from March to April, the readings came in better than the consensus forecast, suggesting that months-long weakening could be stabilizing.

The widely watched monthly survey highlighted that projections for the broader economic landscape have plummeted 32 percent since January, the sharpest percentage drop since the 1990 recession.

Consumers anticipate various risks to the U.S. economy’s outlook, including an inflation resurgence and a weaker labor market. They also expect slower income growth in the year ahead. This, says Joanne Hsu, the director of consumer surveys, will weigh on consumption trends.

“Without reliably strong incomes, spending is unlikely to remain strong amid the numerous warning signs perceived by consumers,” Hsu said in the report.

According to the University of Michigan, the one-year inflation outlook accelerated to 6.5 percent from 5 percent, the highest reading since 1981. Long-run inflation expectations also increased modestly from 4.1 percent in March to a three-decade high of 4.4 percent in April.

The extended deterioration in the Consumer Sentiment Index was pronounced for middle-income households, but worries were broad-based, affecting various age, education, income, and political affiliation groups.

Many surveys have indicated ballooning consternation, whether inflation or employment.

In March, the Federal Reserve Bank of New York’s Survey of Consumer Expectations found that median year-ahead inflation expectations rose by 0.5 percentage points, to 3.6 percent.

The mean perceived probability of losing a job in the next 12 months rose to a one-year high of 15.7 percent. In addition, projections that the U.S. unemployment rate will be higher a year from now climbed to 44 percent, the highest level since April 2020.

Focusing on the Consumer

This month, the WalletHub Economic Index slipped nearly 8 percent as more consumers became less confident about their financial outlook, forcing them to scale back their spending plans.

“This drop is so severe that consumer sentiment is now at its fourth-lowest point in the past five years,” WalletHub said in the study.

The report revealed that the share of consumers expecting to buy an automobile in the next six months is down 13 percent compared to last year. In addition, fewer shoppers plan to make a large purchase in the next few months.

Since the aftermath of the coronavirus pandemic, consumers have propped up the economy. Analysts worry that if shoppers are cutting back, which scores of companies have been forecasting in their earnings calls, growth prospects could come under pressure.

While a recent CNBC-Survey Monkey poll found that 73 percent of Americans say they are “financially stressed,” early indicators suggest consumers have yet to freeze their spending.

During last week’s first-quarter earnings call, Citigroup CFO Mark Mason said that the public is still spending, though shoppers are prioritizing different things.

“The consumer continues to be resilient and discerning in their spending,” Mason said.

People shop at a grocery store in New York City, on June 20, 2024. Samira Bouaou/The Epoch Times

“We’ve seen a shift towards essentials and away from travel and entertainment.

Ultimately, for now, the consumer is “not a concern,” says Nancy Tengler, the CIO and CEO at Laffer Tengler Investments.

“BofA and Citi said consumer spending ticked higher in the first quarter when concerns about tariffs and the economy were on the rise,” she said in a note emailed to The Epoch Times. “JPM said last week that credit and debit card spending rose. But also that spending has largely held up in the weeks after the quarter ended.”

The data ostensibly supports this supposition. The Commerce Department’s advanced estimate of retail sales indicated a 1.4 percent increase in March, the largest one-month jump since January 2023.

Market watchers have attributed this trend to panic buying as shoppers have started front-running President Donald Trump’s tariffs.

“It is, however, noteworthy that while measures of consumer confidence/sentiment have tanked, that has not kept consumers from pulling purchases forward to front-run higher tariffs,” said Richard Moody, the chief economist at Regions Bank, in a note.

Consumer spending could slump in the coming months, but if real (inflation-adjusted) wage growth persists, then conditions might turn out to be better than expected.

“Though slowing, growth in aggregate labor earnings continue to outpace inflation,” Moody said. “While higher tariffs will take a bite, perhaps a nasty bite, out of consumer spending, as long as the labor market holds up, growth in real labor earnings will remain a vital support.”

According to the Bureau of Labor Statistics, real average hourly earnings rose 0.3 percent in March and have increased 1.4 percent over the past 12 months. Real average weekly earnings have also risen 0.8 percent after adjusting for weekly hours.

Ultimately, tariff-related effects on spending will be clearer in the coming months, says Ted Rossman, a senior industry analyst at Bankrate.

“There’s still plenty of uncertainty regarding the path forward,” he said in a statement to The Epoch Times.