American Consumers Brace for Economic Turbulence

The American consumer—long the backbone of the U.S. economy—is sending distress signals that should concern policymakers and investors alike. Consumer sentiment has plummeted to near-historic lows, according to the latest University of Michigan survey released today, with inflation expectations surging to levels not seen in over four decades.

The mid-month reading for April collapsed to a dismal 50.8, down sharply from March’s 57.0 and well below the 54.6 economists had anticipated. This 10.9% monthly decline represents the second-lowest reading in the survey’s 73-year history, surpassed only by depths reached in June 2022.

“We’ve moved from anxious to petrified,” notes Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics, capturing the dramatic shift in consumer psychology.

Inflation Fears Reach Four-Decade Highs

Perhaps most alarming is the surge in inflation expectations, with consumers now anticipating 6.7% inflation over the next year—the highest reading since November 1981 and a significant jump from March’s 5%. Long-term inflation expectations also climbed to 4.4%, marking the highest level since June 1991.

These expectations stand in stark contrast to recent market-based forecasts and even this week’s Consumer Price Index and Producer Price Index readings, which showed inflationary pressures easing in March. This divergence highlights a troubling disconnect between economic data and consumer psychology.

Warning Signs Flashing Red

The survey revealed deterioration across all major indicators:

• Current economic conditions index dropped to 56.5, an 11.4% decline from March
• Economic expectations plunged to 47.2, reaching the lowest point since May 1980
• Unemployment fears surged to levels not seen since 2009

Joanne Hsu, the survey’s director, emphasized the comprehensive nature of the decline: “Consumers report multiple warning signs that raise the risk of recession: expectations for business conditions, personal finances, incomes, inflation, and labor markets all continued to deteriorate this month.”

Particularly notable is the universal nature of the pessimism, cutting across age groups, income levels, and political affiliations—suggesting a broad-based deterioration in consumer outlook rather than isolated concerns among specific demographics.

Trade Policy and Economic Uncertainty

The timing of the survey, which captured responses between March 25 and April 8, means it largely missed President Trump’s April 9 announcement of a 90-day pause on planned tariffs against numerous trading partners. Whether this temporary reprieve will meaningfully shift consumer sentiment remains to be seen.

Nevertheless, concerns persist that the administration’s broader trade agenda could fuel inflation and dampen economic growth. Several prominent Wall Street figures and economists have recently warned that these policies could push the U.S. economy toward recession in the coming year.

The Self-Fulfilling Prophecy Risk

Federal Reserve officials have recently expressed concern about the psychological dimension of inflation—specifically, that consumer expectations can rapidly transform into reality as behavior changes. When consumers anticipate higher prices, they often accelerate purchases and demand higher wages, creating the very inflationary pressures they fear.

This feedback loop explains why today’s University of Michigan survey may carry more weight with policymakers than market-based measures suggesting minimal inflation concerns.

Market Reaction and Outlook

Financial markets responded swiftly to the report, with stocks turning negative and Treasury yields climbing higher—indicating traders are reassessing economic prospects and potential Federal Reserve responses.

The central question now is whether actual economic conditions will deteriorate to match consumer expectations, or if sentiment will rebound as inflation data continues to moderate. Either way, the surprising depth of consumer pessimism adds another layer of complexity to an already challenging economic environment.

What’s clear is that American consumers are signaling profound unease about the economic road ahead—a warning that deserves serious attention from policymakers, businesses, and investors alike.