US consumer sentiment declined in early September, with the University of Michigan's preliminary sentiment index falling to 47.8 from 51.7. This decrease was primarily driven by higher gasoline prices and renewed trade tensions, which heightened affordability concerns among consumers.
The final September reading of the Michigan Consumer Sentiment Index confirmed a drop to 47.8, marking a 7.5% decrease from August and a 13.2% decline year-over-year. This figure was 3.2 points below the consensus forecast of 51.0, making it the second-lowest reading since 1952. Year-ahead inflation expectations spiked to 4.6% from 4.0% in August, largely attributed to fuel costs and tariffs. The Consumer Expectations subindex, which measures how people anticipate the economy will perform, plunged 15.7% to 45.8, missing its own consensus of 50.5.
Approximately 60% of survey respondents mentioned tariffs without prompting, with most indicating plans to reduce spending on tariff-affected goods. This sentiment matters significantly as consumer spending accounts for roughly two-thirds of the US economy. When consumers are anxious about prices and job prospects, they tend to spend less, which can slow economic growth. The Federal Reserve, having recently approved a 25-basis-point interest rate increase to a target range of 3.75%-4.00% at its September 2026 meeting, now faces increased pressure to potentially maintain elevated interest rates given the rising inflation expectations.
The decline in sentiment, particularly the collapse of the Consumer Expectations Index by 15.7% to 45.8, suggests that while current conditions are deteriorating, consumers anticipate even greater pressure ahead. The only lower reading on record for the sentiment index was 44.8 in May 2026, during the peak of the US-Iran conflict fuel shock. This sustained dip in consumer confidence leading into the holiday shopping season serves as a warning sign for retailers, indicating potential pullbacks in consumer spending, particularly for discretionary and retail sectors.
