Consumer Sentiment Declines Significantly in March 2025

The University of Michigan Consumer Sentiment Index shows that U.S. consumer sentiment dropped to 57.9 in March, down over 6 points from 64.7 in February.

The sentiment has dropped to the lowest level in 28 months, marking the sharpest decline since November 2022. This pessimism among consumers is largely attributed to increasing concerns regarding stagflation, recession, and deteriorating economic conditions linked to recent Trump administration policies.

Survey Insights

Source: University of Michigan Survey of Consumers U.S. consumer sentiment across all political affiliations as of March 2025.

The current consumer sentiment has sharply declined across all demographics, including age, gender, education, income, wealth, regions, and political affiliations. Led by Joanne Hsu, the University of Michigan Survey indicates that consumer sentiment among Republicans dropped to 83.9, while Independents and Democrats stood at 57.2 and 41.4, respectively.

The survey also shows that this decline has continued for three consecutive months, with a 22% decrease since December 2024 and over a 27% drop year-on-year compared to March 2024 when sentiment was at 79.4. There have also been significant declines in consumer expectations.

Consumer Expectations and Inflation

The Consumer Expectation Index fell from 64.0 in February to 54.2 in March, indicating a 15.3% decrease month-on-month. Expectations are down 30% year-on-year from 77.4 last March. Republican consumers’ expectations declined by 10%, while Independents and Democrats dropped by 12% and 24%, respectively. Consumers are anticipating the impact of ongoing policies on personal income, the stock market, inflation, employment, and business conditions.

Inflation Expectations Rise While Spending Drops

The survey highlighted an increase in inflation expectations for the upcoming year, rising to 4.9% in March from 4.5% in February, marking the highest point since November 2022. Additionally, long-term inflation expectations rose from 3.5% to 3.9%, the highest since 1993. Consumers expect unemployment rates to worsen, climbing to nearly 5% from below 4%.

U.S. Treasury Secretary Scott Bessent expressed added concerns about a potential recession, stating that avoiding one isn’t guaranteed.

U.S. consumer spending notably dropped by 0.2% in January, the first decline in nearly two years, affecting a wide array of goods, while spending on services increased.

Global Consumer Sentiment

Consumer sentiment in countries like China is on the rise, contrasting the stagnation in the U.S. economy. Retail sales in China grew by about 4% in the first two months of this year, surpassing expectations.

Trump Tariffs Create Economic Uncertainty

> Trump’s erratic tariff policy is sending economic uncertainty through the roof and tanking markets big time. — Nick Gillespie (@nickgillespie) March 13, 2025

Economic uncertainty regarding U.S. health is exacerbated by President Trump’s tariffs, leading to a potential economic slowdown according to the OECD’s quarterly report. The report notes significant declines in U.S. capital markets, with tariffs being a primary factor for the negative trends.

These levies impact global trade dynamics, as import taxes on goods from Canada, Mexico, the EU, and China begin to create trade wars.

The OECD labeled the tariff policies as ‘on-again, off-again levy threats,’ creating confusion and caution within the business community. Small businesses, crucial for economic health, report declining optimism, with the NFIB Small Business Optimism Index dropping over 2% in February.

Conclusion

Concerns about profit trends, sales expectations, and economic growth are deterring expansion efforts among businesses across the nation.