Consumer Sentiment Crashes To 3-Year Lows As Inflation Expectations Spike To 1981 Highs

A sharp collapse in consumer confidence is setting off alarms from Main Street, with fresh inflation fears and growing recession risk fanning concerns that the U.S. economy is heading toward a painful stagflationary mix not seen since the early 1980s.

In preliminary April data released Friday, the University of Michigan's Consumer Sentiment Index plunged to 50.4, its lowest reading since June 2022 and a steep drop from March's 57 print.

The figure missed economists' forecasts of 54.5 by a wide margin, highlighting deepening unease among American households about the economic outlook.

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The subindex measuring current economic conditions dropped 11.4% month-over-month to 56.5, while the gauge for consumer expectations fell even more sharply to 47.2, down from 52.6 in March. On a year-over-year basis, that's nearly 30 points below April 2024 levels.

"Consumer sentiment fell for the fourth straight month, plunging 11% from March," said Joanne Hsu, director of the Survey of Consumers at the University of Michigan. "This decline was, like last month's, pervasive and unanimous across age, income, education, geographic region and political affiliation."

Speaking on Bloomberg TV, Hsu added, "We have Americans from across the political spectrum telling us that the outlook for the economy has deteriorated over the last two months. Inflation expectations are increasing for the short run and, for the long run.

Hsu warned that Americans are increasingly bracing for the worst. "Consumers report multiple warning signs that raise the risk of recession," she said, noting declines in sentiment around labor markets, personal incomes and overall business conditions.

"Consumers feel less confident about their own incomes, about their stock portfolios, about their wealth. These are all warning signs for their ability or willingness to continue spending at a robust level," she added.

Inflation Expectations Surge to Multi-Decade Highs

Perhaps the most jarring development in the survey was the spike in inflation expectations.

Year-ahead inflation expectations shot up from 5% to 6.7%, the highest reading since 1981—a period known for double-digit inflation and interest rates nearing 20%.

Longer-term expectations are also moving higher. The 5-year inflation outlook rose from 4.1% to 4.4%, the highest level since 1990. These figures complicate the Federal Reserve's already uncertain path on interest rates.

Markets React To A Double Dose Of Stress

Despite earlier signs of easing producer price pressures, Friday's sentiment shock triggered a return of risk aversion on Wall Street.

Treasury yields surged, the dollar dropped, and gold extended its run to new record highs as investors sought safety amid uncertainty.

Equities flipped to losses. The S&P 500 — as tracked by the SPDR S&P 500 ETF Trust SPY — traded at 5,230, down 0.6% on the day by 10:24 a.m. ET, the Dow Jones Industrial Average fell 0.7% and the Nasdaq 100 tumbled 0.9%.

The 10-year Treasury yield hit 4.50%, its highest level in over three months. The U.S. dollar index tumbled 1.4% to 99.64 by mid-morning, the weakest level since September 2024, reflecting concerns over the Fed's policy credibility and mounting fiscal imbalances.

Gold, often seen as a hedge against inflation and currency risk, jumped 1.4% to $3,232 per ounce, extending record gains.

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