US consumer sentiment declined for the second consecutive month in September, with the University of Michigan's preliminary sentiment index falling to 47.8 from 51.7 in August. This figure was below all estimates in a Bloomberg survey of economists. The drop is primarily attributed to higher gasoline prices and renewed trade tensions, which have heightened affordability concerns for households. This marks the second-lowest reading since 1952, only surpassed by May 2026's all-time low of 44.8, which occurred during a peak in the US-Iran conflict fuel shock.
The decline in sentiment was comprehensive, affecting both current conditions and future expectations. The Consumer Expectations subindex plunged by 15.7% to 45.8, indicating that Americans anticipate greater economic pressure ahead. The Current Conditions subindex also eased, by 1.9% to 50.9. Year-ahead inflation expectations spiked to 4.6% from 4.0% in August, while five-year inflation expectations rose slightly to 3.4% from 3.3%. Approximately 60% of survey respondents spontaneously mentioned tariffs, with most planning to reduce spending on tariff-affected goods.
The Federal Reserve's recent 25-basis-point interest rate hike, raising the target range to 3.75%-4.00%, along with crude oil prices above $100 per barrel, further exacerbated pressure on household confidence. This combination of elevated inflation expectations and near-record-low sentiment presents a dilemma for the Federal Reserve, as it suggests that further tightening risks accelerating a contraction in demand. The sustained high energy costs and rising interest rates are significant factors pushing consumer confidence to levels historically associated with recessionary psychology.
The weak sentiment reading has implications for the broader economy, particularly for consumer spending, which accounts for roughly two-thirds of US economic activity. With inflation expectations at 4.6% and consumers feeling anxious, there's a risk of reduced spending, potentially slowing economic growth. This bearish outlook impacts consumer discretionary stocks and retailers heading into the holiday shopping season. Markets, including the S&P 500 and Nasdaq, reacted cautiously, with some analysts noting that consumer-facing technology companies like Apple are particularly sensitive to shifts in household spending power.
