The Daily Dish
March 17, 2025
Inside Declining Consumer Sentiment
Friday’s data included an alarming decline in consumer sentiment in March as measured by the University of Michigan survey. According to the survey:
Consumer sentiment slid another 11% this month, with declines seen consistently across all groups by age, education, income, wealth, political affiliations, and geographic regions. Sentiment has now fallen for three consecutive months and is currently down 22% from December 2024. While current economic conditions were little changed, expectations for the future deteriorated across multiple facets of the economy, including personal finances, labor markets, inflation, business conditions, and stock markets. Many consumers cited the high level of uncertainty around policy and other economic factors; frequent gyrations in economic policies make it very difficult for consumers to plan for the future, regardless of one’s policy preferences. Consumers from all three political affiliations are in agreement that the outlook has weakened since February. Despite their greater confidence following the election, Republicans posted a sizable 10% decline in their expectations index in March. For Independents and Democrats, the expectations index declined an even steeper 12 and 24%, respectively.
While the survey emphasized the commonalities across the political spectrum, the Michigan Survey always reveals a strong partisan split. Specifically, the sentiment index for Republicans stood at 83.9, for Independents at 57.2, and for Democrats at 41.4. An even more striking difference is in inflation expectations, which stood at 4.9 percent overall. Republicans expected 0.1 percent inflation, Independents 4.4 percent, and Democrats 6.5 percent.
These partisan differences have existed in the Michigan data for a long time, one of the reasons that many analysts are skeptical of its value. Another is the fact that the movements in the Michigan survey are not mirrored in other surveys. The New York Fed survey, for example, has shown inflation expectations remaining at 3.0 percent through February (March data are not yet available).
There is little doubt that the erratic tariff policies of the Trump Administration have taken their toll on the near-term outlook, in part because of the policies themselves and in part because of the tremendous uncertainty about the scale, scope, and timing of tariffs. But diagnosing the quantitative decline in economic conditions will require measures of hard data and not merely surveys of sentiment.
Fact of the Day
20-percent tariffs on China will add just over $45 billion in annual costs for U.S. consumers and businesses.
