U.S. Consumer Sentiment Drops Unexpectedly

(Reuters) – U.S. consumer sentiment unexpectedly fell in February to a seven-month low, alongside rising inflation expectations, as households expressed concerns over the impacts of President Donald Trump’s threatened tariffs.

The University of Michigan’s Surveys of Consumers reported a decline in its Consumer Sentiment Index to 67.8, down from January’s final reading of 71.1, matching economist expectations.

Households anticipated inflation to rise to 4.3% over the next year—the highest since November 2023—up from 3.3% the previous month. Over the next five years, inflation expectations increased to 3.3%, the highest since June 2008, from 3.2% in January.

The decline in sentiment was observed across various age and wealth demographics, as well as across political affiliations, according to survey Director Joanne Hsu. Notably, even Republicans, who had been optimistic post-Trump’s election, showed a more negative outlook, marking their sentiment lowest in three months.

Hsu noted, “The decrease was pervasive.” All five index components declined, particularly with a 12% drop in buying conditions for durable goods, attributed to fears concerning the ultimate effects of tariff policies.

Expectations for personal finances decreased by about 6% from the previous month, reaching their lowest since October 2023, reflecting worries about potential high inflation within a year.

The unusual one-percentage-point surge in one-year inflation expectations marked the fifth occurrence in 14 years. This increase poses challenges for Federal Reserve policymakers aiming to reach their 2% annual inflation target.

The sentiment survey period for February ended on February 4, coinciding with Trump’s announcement of a temporary halt to 25% tariffs on goods from Mexico and Canada.

Trump also indicated plans to announce reciprocal tariffs next week, aligning with tariffs imposed by other nations on U.S. exports, as reported by Reuters.