Survey Results and Consumer Sentiment

In March 2023, consumer sentiment experienced a notable decline, as revealed by the University of Michigan’s latest survey. The mid-month sentiment reading plunged to 57.9, marking a 10.5% decrease from February and falling short of the Dow Jones consensus estimate of 63.2. This decline is significant, representing a 27.1% drop from the previous year, the lowest level recorded since November 2022.

Current Conditions vs. Future Expectations

While the index measuring current conditions saw a relatively mild decrease of 3.3%, the expectations for future economic conditions fell by 15.3% month-over-month and were down 30% compared to the same period in the previous year. These figures demonstrate a growing apprehension about the economy’s direction among consumers.

Inflation and Tariff Impacts

Concerns over inflation have intensified, particularly in light of recent tariff measures announced by the government. New tariffs on aluminum and steel have taken effect, and additional threats of 200% tariffs on European Union liquor products are causing further unease. These developments highlight the increasing pressure on consumer prices and economic stability.

Despite this, the one-year inflation outlook rose to 4.9%, an increase of 0.6 percentage points from February and the highest since November 2022. At the five-year forecast, expected inflation reached 3.9%, up by 0.4 percentage points, marking levels not seen since February 1993.

Sentiment Across Political Lines

Interestingly, the decline in sentiment is not confined to a single political affiliation; it spans across partisan lines. Joanne Hsu, the survey’s director, noted, “Many consumers cited the high level of uncertainty around policy and other economic factors; frequent gyrations in economic policies make it very difficult for consumers to plan for the future, regardless of one’s policy preferences.” The survey results indicated a 10% decline in expectations among Republicans, 24% among Democrats, and 12% among independents, with an overall sentiment drop of 22% since December.

Market Reactions and Federal Reserve Outlook

Despite the survey indicating a decline in sentiment, stock markets remained largely unfazed, maintaining positive standings while Treasury yields saw an uptick. Financial analysts project that the Federal Reserve will likely maintain its interest rates during its upcoming meeting, with market participants anticipating around 0.75 percentage points of rate cuts by the end of the year, starting as soon as June.