Recent data reveals a significant decline in US consumer sentiment for February, with the sentiment gauge dropping to 64.7, a stark decrease from 71.7 in January. This downturn indicates a remarkable 16% annual decline, as confirmed by the University of Michigan's final results for consumer surveys.
The preliminary findings had initially suggested a more stable figure at 67.8, but the final results tell a different story, showcasing a consensus expectation of no change from earlier reports. The decline in sentiment was widespread, affecting consumers across various demographics, including age, income, and wealth categories.
Director of Surveys of Consumers, Joanne Hsu, pointed out that the buying conditions for durable goods saw a dramatic 19% drop, mainly fueled by concerns over imminent price increases due to tariffs. Inflation expectations for the upcoming year ascended to 4.3%, a notable rise from January's 3.3%. Additionally, the five-year price growth outlook increased to 3.5% from 3.2%, highlighting significant upward pressure on prices that consumers expect in the near future.
This marks the most substantial month-over-month increase since May 2021, indicating growing apprehensions among consumers about the economy. In the context of monetary policy, the Federal Reserve maintained its benchmark lending rate after three consecutive cuts, suggesting that inflation remains elevated.
The minutes from the recent Fed meeting released on Wednesday indicated that policymakers are cautious about further rate cuts, needing to observe a cooling in inflation levels. They also expressed concerns that potential shifts in trade and immigration policies could impede the disinflation process. The index reflecting current economic conditions experienced a steep decline of nearly 13%, landing at 65.7 for February.
Similarly, the expectations index fell by 7.9%, also showing substantial declines from the previous year. Hsu noted that expectations regarding personal finances and the short-term economic outlook decreased almost 10% this month, while the long-term economic outlook saw a 6% drop, reaching its lowest point since November 2023. Additionally, a report from S&P Global highlights an unexpected slowdown in output growth within the US private sector during February, amid diminishing optimism concerning tariffs and the implications of domestic spending reductions.
As consumer confidence dwindles, the outlook remains uncertain, emphasizing the need for careful observation of economic indicators moving forward..