Consumer confidence took another hit this month, primarily due to escalating worries about trade wars, inflation, and the labor market. The Michigan Consumer Sentiment Index plummeted to 50.8 in April, its second-lowest reading on record, surpassed only by June 2022. This represents a significant 10.9% (6.2 point) decline from March, undershooting the anticipated 54.0. Furthermore, consumer sentiment has decreased by 34.2% (26.4 points) compared to a year ago, marking the largest annual decline since July 2022.
The Michigan Consumer Sentiment Index is a monthly survey of consumer confidence levels in the U.S. with regards to the economy, personal finances, business conditions, and buying conditions, conducted by the University of Michigan. There are two reports released each month; a preliminary report released mid-month and a final report released at the end of the month.
Joanne Hsu, the director of surveys, made the following comments:
Consumer sentiment fell for the fourth straight month, plunging 11% from March. This decline was, like the last month’s, pervasive and unanimous across age, income, education, geographic region, and political affiliation. Sentiment has now lost more than 30% since December 2024 amid growing worries about trade war developments that have oscillated over the course of the year. Consumers report multiple warning signs that raise the risk of recession: expectations for business conditions, personal finances, incomes, inflation, and labor markets all continued to deteriorate this month. The share of consumers expecting unemployment to rise in the year ahead increased for the fifth consecutive month and is now more than double the November 2024 reading and the highest since 2009. This lack of labor market confidence lies in sharp contrast to the past several years, when robust spending was supported primarily by strong labor markets and incomes. Note that interviews for this release were conducted between March 25 and April 8, closing prior to the April 9 tariff partial reversal.
See the chart below for a long-term perspective on this widely watched indicator. We've highlighted the index's value at the start of each recession and included a callout to the most recent 12 months. At 50.8, the current level is below the index's value at the start of all six recessions since its inception.
To put today’s report in historical context, consumer sentiment is currently 39.9% below its average reading of 84.5 (arithmetic mean) and 39.1% below its geometric mean of 83.4, based on data dating back to 1978. The current index level is at the 0th percentile of the 568 monthly data points in this series.
This indicator is somewhat volatile, with an average monthly change of 3.1 points. The latest data shows a 6.2-point decrease from the previous month. To visualize the volatility, here’s a chart with monthly data and a three-month moving average. The bottom half of the chart includes real GDP, which allows us to evaluate the correlation between the Michigan Consumer Sentiment Index and the broader economy.
Each month, the survey results highlight sentiment within each political party. To provide additional context, I’ve included a chart that shows the presidencies over our timeframe. As you can see, sentiment has fluctuated both positively and negatively under both Republican and Democratic administrations.
Michigan Consumer Sentiment Index: Components
The Michigan Consumer Sentiment Index consists of two sub-indexes: the Current Economic Conditions Index (CECI) and the Consumer Expectations Index (CEI). The CECI reflects consumers' views of their current financial situation and the overall economy, while the CEI gauges their outlook for the future.
In April, the CECI dropped to 56.5, the lowest reading since June 2022. This represents an 11.4% decline from the previous month and a 28.5% decline from a year ago. This reading was below the forecast of 61.5.
Meanwhile, the CEI fell to 47.2, the lowest reading since 1980. This represents a 10.3% decline from the prior month and a 37.9% drop from one year ago. This reading was worse than the forecast of 50.8.
Michigan Consumer Sentiment Index: Inflation Expectations
Year-ahead inflation expectations surged from 5.0% last month to 6.7% this month, the highest reading since 1981 and marking four consecutive months of unusually large increases of 0.5 percentage points or more. This month’s rise was seen across all three political affiliations. Long-run inflation expectations climbed from 4.1% in March to 4.4% in April, reflecting a particularly large jump among independents.
Other Sentiment Indicators
For an additional perspective on consumer attitudes, see the most recent Conference Board's Consumer Confidence Index. Both indexes gauge consumer attitudes toward the current and future strength of the economy. However, the Consumer Confidence Index is more influenced by employment and labor market conditions while the Michigan Sentiment Index is more focused on household finances and the impact of inflation.
The Conference Board index is the more volatile of the two, but the broad pattern and general trends have been remarkably similar to the Michigan index.
And finally, the prevailing mood of the Michigan survey is also similar to the mood of small business owners, as captured by the NFIB business optimism Index (monthly update here).
The next update to this report will be published on April 25th.
ETFs associated with sentiment include: Consumer Discretionary Select Sector SPDR Fund (XLY).
Read more updates by Jen Nash
