Consumer sentiment took a sharp downturn in March, with the University of Michigan’s index falling to its lowest level since 2022. Economists fear this pessimism could weigh on spending and investment, compounding concerns about inflation and economic uncertainty.
Consumer sentiment in the U.S. took a significant hit in March, according to the University of Michigan’s monthly survey, dropping to its lowest level in two years. The index registered at 57, down from 64.7 in February and 79.4 a year ago. This steep decline underscores growing unease about inflation and economic uncertainty, raising concerns that consumer spending and investment may weaken in the months ahead.
The latest Commerce Department data released Friday revealed that personal spending rose by just 0.4% in February from the previous month, falling short of the expected 0.5% increase. While spending remains positive, the slower-than-expected growth signals a potential shift in consumer behavior, possibly driven by inflation fears.
Inflation expectations have also surged among consumers. Respondents in the University of Michigan’s survey anticipate prices rising by 5% over the next year, a stark increase from the 2.8% forecasted at the end of 2024. The Federal Reserve’s preferred inflation gauge, which excludes food and energy, rose to 2.8% for the 12 months through February, reinforcing concerns that inflationary pressures remain persistent.
Richmond Federal Reserve President Tom Barkin highlighted the uncertainty surrounding the economic outlook, likening the current environment to navigating in dense fog. “With all this change, a dense fog has fallen. It isn’t an everyday ‘forecasting is hard’ type of fog. It’s a ‘zero visibility, pull over and turn on your hazards’ type of fog,” Barkin remarked, emphasizing the difficulty in making accurate economic predictions.
Meanwhile, financial markets reflected the day’s mixed economic signals. Commodities performed well, with natural gas rising 2.78% to $4.03, soybean oil increasing by 1.85% to $45.09, and gold climbing 0.95% to $3,090. U.S. Treasury bonds also gained 1.13%, signaling a flight to safer assets amid economic concerns.
On the equities front, major stock indices posted significant declines. The NASDAQ 100 led the losses, dropping 2.46% to 19,498.50, followed by the Russell 2000, which fell 2.20% to 2,035. The S&P 500 E-mini and the Dow Jones also declined by 1.85% and 1.59%, respectively, as investors weighed the impact of weakening consumer sentiment and inflation concerns.
As uncertainty looms, all eyes will be on upcoming economic reports and Federal Reserve actions to gauge whether inflationary pressures can be tamed without derailing economic growth. With consumer confidence waning and inflation expectations rising, the road ahead remains challenging for policymakers and investors alike.
stephen coleman 3-28-2025