Consumer sentiment has fallen this month to its lowest level since 2022.
The University of Michigan's consumer sentiment survey in March fell 11% from February. The monthly survey is closely watched because a decline often means people are holding back on purchases, which can translate to fewer sales for businesses that rely on shoppers.
Yet the measurement of consumer sentiment sometimes gets a bad rap for not reflecting reality. For instance, the survey fell in June 2022 to its lowest level since it started in 1978 -- when the unemployment rate was low, the stock market was up and consumer spending was 9.8% higher than during the pandemic.
Still, the university's survey has tended, over nearly 50 years, to usually follow along with economic downturns -- even with rare blips like in 2022. Responses tend to be heavily partisan, but this month's report showed sentiment down across all political affiliations.
Q: Are consumer sentiment studies a good measure of the economy?
Alan Gin, University of San Diego
YES: Consumer spending is about 70% of the Gross Domestic Product, so it is an important part of the economy. Consumer sentiment gives an indication of how consumers are feeling. Those feelings may affect consumer spending, particularly on big ticket items. Consumer spending in turn affects employment, and a feedback loop can develop there if reduced employment affects sentiment further. Consumers may be concerned about the negative impacts of tariffs and cutbacks in government programs and employment.
James Hamilton, UC San Diego
YES: Consumer sentiment is a useful economic indicator, though it is not the most important or reliable economic measure to which we should be paying attention. When coupled with the stock-market correction and heightened measures of policy uncertainty, the fall in consumer sentiment definitely concerns me. The Trump administration should take this as a warning flag to be much more cautious about the hornet's nest of tariffs and retaliations that it has stirred up.
Kelly Cunningham, San Diego Institute for Economic Research
YES: Consumer sentiment tends to correlate with personal expenditures and can help predict spending. Sentiment measures are among multiple factors gauging economic and consumer outlook. Impacts from compounding inflation, higher interest rates and concerns about general social, cultural, and geopolitical climate are causing a general sense of tenuous, long-term financial stability and susceptibility to upheaval from wide-ranging social and political actions. With increased uncertainty and rising costs of capital, markets become riskier and investments may be shelved.
Norm Miller, University of San Diego
NO: Consumer confidence indices have been an inconsistent measure of the economy, often correlated but lagging new net employment figures. They may reflect media and political hype as much as reality. Better stats are net new employment, new unemployment claims, inflation indices, new corporate investments, capacity utilization and the stock market in general, which is an excellent leading indicator of the economy. The stock market tends to lead the GDP by several months.
David Ely, San Diego State University
YES: Consumer sentiment is influenced by expectations of future business conditions, inflation and personal finances. These impact consumers' spending decisions and the overall strength of the economy. However, expectations can change quickly, especially during periods of rapidly changing governmental policy, and lead to significant changes in a sentiment index. Consumer sentiment is useful to track, but evaluating the current and future states of the economy requires looking at a broad set of economic measures.
Ray Major, economist
YES: If interpreted properly, consumer sentiment studies give an indication of how the general public feels about certain issues, and are a valuable data point. But feelings don't always correlate with what is actually happening in the economy. Uncertainty leads to lower consumer confidence because people are afraid of the unknown and of change. So one must be careful before drawing conclusions when using consumer sentiment as a measure of the economy.
Jamie Moraga, Franklin Revere
NO: While important, consumer sentiment is one of many economic indicators. The studies can provide information and insights on consumer optimism about spending, personal finances, the job market, and future economic outlook, but aren't typically used alone. When combined with data on employment, inflation, interest rates, and GDP, they can offer a more comprehensive assessment of economic health. That said, positive consumer sentiment is important as it boosts economic activity and supports overall growth.
Bob Rauch, R.A. Rauch & Associates
NO: Consumer sentiment studies can provide valuable insights, but they're not a definitive measure of the economy. They reflect how people feel about their personal finances and the broader economic outlook, but they don't account for hard economic data like GDP, employment rates, or business investments, which are equally crucial for understanding economic health.
Austin Neudecker, Weave Growth
NO: Consumer sentiment studies provide valuable insights into public perception but are far from a definitive measure of the economy. Increasingly in a post-truth era, sentiment can be influenced by short-term events, media narratives, and political bias, making it an unreliable indicator. Hard economic data, such as GDP growth, employment rates, and corporate earnings, offer more reliable indications. While sentiment affects spending behavior, it should be viewed as a supplementary gauge rather than a primary economic barometer.
Phil Blair, Manpower
YES: In addition to consumer sentiment, long-term inflation expectations among Americans jumped by the most in 32 years. People and businesses are holding back on purchases, which means fewer sales for businesses. This lack of confidence leads to less buying and more layoffs and the economy spirals down. This lack of confidence is caused by the administration's erratic behavior regarding tariffs, foreign policy and global relations.
Gary London, London Moeder Advisors
YES: In fact, consumer sentiment is often the best economic indicator because it is a peek into the future. In contrast, recent and decent inflation reports, and steady job numbers reflect the past. Consumer sentiment translates into behavior. For consumers, I see anxiety, a pullback on spending, and holding off on big purchases. For businesses, we are seeing downscaling, costs rising, and labor being cut. The stock market is experiencing monumental correction. There are your measurements.
Chris Van Gorder, Scripps Health
YES: No single indicator will tell all or be perfect, but the consumer sentiment indicator -- like many others when considered together -- is helpful in putting together a bigger overall picture. Changes in other indicators such as interest rates, unemployment figures and others can together provide context and insight for what is occurring within the economy.
Not participating this week:
Caroline Freund, UC San Diego School of Global Policy and Strategy