US Consumer Sentiment Drops 5.4% In March: What It Means For The Markets

The SPDR S&P 500 ETF Trust SPY bounced off its lows Friday after the latest reading of consumer confidence suggests rising prices and economic uncertainty may be negatively impacting U.S. consumers.

What Happened: The University of Michigan has announced the preliminary results of its March Survey of Consumers. The index for consumer sentiment was up 6.7% year-over-year but down 5.4% compared to February. The index for economic conditions was also down 1.2% year-over-year and 6.1% on a monthly basis.

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The consumer sentiment index suggests consumers are somewhat concerned about inflation, economic uncertainty and sluggish financial markets. The Labor Department reported this month that the Consumer Price Index (CPI) was up 6% in February, down from a 40-year high of 9.1% back in June 2022.

The University of Michigan reported the index for consumer expectations dropped 4.9% compared to February but is up 13.3% from a year ago.

Why It Matters: The S&P 500 has given up most of its January gains as persistent inflation, rising interest rates and instability among regional banks has weighed on investors' optimism.

The University of Michigan said Friday the median expected year-ahead inflation rate among consumers is 3.8%, down from 4.2% in February.

While inflation may finally be subsiding, it's still well above the Federal Reserve's long-term target of 2%. It remains to be seen just how much higher the Fed will need to raise interest rates to bring inflation down to its target range.

Investors will get their next key economic update Wednesday when the Federal Reserve releases its latest interest rate decision and accompanying commentary.

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