Consumer confidence dropped sharply in September to its lowest level in four months, according to preliminary data released Friday, as Americans expressed growing anxiety about job security and the persistence of high prices.
The University of Michigan’s closely watched index of consumer sentiment fell to 55.4 in September from 58.2 in August, missing economists’ expectations and reflecting what survey director Joanne Hsu described as “multiple vulnerabilities in the economy.”
The decline was driven primarily by lower- and middle-income consumers, who reported heightened concerns about business conditions, labor markets and inflation. Perhaps most telling, consumers’ expectations about the future deteriorated more sharply than their assessment of current conditions, suggesting pessimism about the economic trajectory.
“Consumers continue to note multiple vulnerabilities in the economy, with rising risks to business conditions, labor markets, and inflation,” Hsu said in a statement. “Likewise, consumers perceive risks to their pocketbooks as well.”
The sentiment data adds to a growing body of evidence that the Federal Reserve’s restrictive monetary policy is beginning to slow economic activity, particularly in the labor market. Higher interest rates, designed to combat inflation, appear to be cooling hiring and dampening consumer spending power — key transmission mechanisms through which Fed policy works to reduce price pressures.
Recent economic data has painted a picture of a decelerating economy. U.S. employers added just 22,000 jobs in August, well below expectations, while consumer prices rose at their fastest pace since the beginning of the year. A separate survey from the Federal Reserve Bank of New York this week found that consumers feel less likely to find a new job if needed than at any time in that survey’s history.
The Michigan survey showed that consumers’ expected probability of personal job loss has grown sharply this year and ticked up again in September. Both current and expected personal finances declined about 8 percent this month, reflecting pressure on household budgets.
While consumers expect prices to rise 4.8 percent over the next year — unchanged from August — their longer-term inflation expectations climbed to 3.9 percent from 3.5 percent, marking the second consecutive monthly increase. That reading remains well above the Federal Reserve’s 2 percent target and could complicate policymakers’ efforts to bring inflation under control.
Trade policy continued to weigh heavily on consumer minds, with about 60 percent of survey respondents providing unprompted comments about tariffs during interviews. Sentiment has only partially recovered since hitting a low in April, when the White House first announced plans for significant tariffs on imported goods.
The deteriorating confidence was reflected in financial markets Friday, with stocks opening lower and the yield on the 10-year Treasury note rising to 4.064 percent.
The survey results underscore the challenging balancing act facing Federal Reserve officials as they seek to slow the economy enough to tame inflation without triggering a recession. While restrictive monetary policy appears to be working as intended by cooling labor demand and tempering consumer spending, the growing anxiety among Americans about their economic prospects suggests the effects may be intensifying.
Economists had expected the sentiment index to decline only slightly to 58.1, making the actual drop to 55.4 more pronounced. The reading represents a significant deterioration from September 2024, when the index stood at 70.1.
The survey of consumers was conducted from Aug. 26 to Sept. 8, capturing reactions to both the weak jobs report and rising prices in key household expenses like groceries and gasoline.
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