Consumer sentiment fell back 5.8% this month, ending a three-month positive streak and offsetting all the gains registered during that time, according to final March data from the University of Michigan’s Surveys of Consumers released Friday (March 27).
The index now stands 6.5% below its level of March 2025 and 33% below the register of March 2024.
Surveys of Consumers Director Joanne Hsu identified “escalating gas prices and volatile financial markets” as key drivers of diminishing sentiment. Hsu noted that the drop in sentiment was largest among middle- and higher-income consumers who hold stocks. About two-thirds of interviews were completed after the start of the U.S. military conflict in Iran.
Within the index, expectations evidenced the strongest dip, dropping back 8.7% relative to the month prior, while perceptions of current conditions inched back 1.4%. Yet, relative to a year ago, it is the latter which dropped further, by 12.5%, while the gap from a year prior is of 1.7% for expectations. Overall, the short-run economic outlook plunged 14%, and year-ahead expected personal finances sank 10%, while declines in long-run expectations were more subdued.
Year-ahead inflation expectations climbed from 3.4% in February to 3.8% this month, the largest one-month increase since April 2025 and well above the current 12-month CPI growth of 2.4%. Long-run inflation expectations remain largely stable at 3.2%. Hsu noted that for both time horizons, interviews completed after February 28 (the start of the U.S. military intervention in Iran) exhibited higher inflation expectations than those completed before that date.
As PMNTS noted recently, while overall inflation is cooling, pressures on key spending categories have disproportionate effects on perceptions, with gas being one of them. In fact, a group of Stanford researchers recently published an article estimating that the recent gas price hike could end up offsetting the tax refunds consumers are expecting this year. It was reported Thursday (March 26) that retailers are cautioning that a lengthy war in Iran could mean higher prices in stores.
Turmoil in financial markets can also imply that extra cash return on savings may also disappear, with the latest poll by the American Association of Individual Investors showing 50% of their respondents being bearish on the stock market in the short term. This indicates that geopolitical noise can have immediate and tangible effects on the day-to-day lives of consumers.