Consumer sentiment soured in September, and inflation expectations ticked up again, worrying signs for the economy.

Consumer sentiment fell to 55.4, down from 58.2 in August and below economists’ expectations, according to a preliminary reading of the University of Michigan Consumer Sentiment Index for September. Consumer sentiment is now down 21% from a year ago. September marked the lowest such reading since May.

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“This month’s easing in economic views was particularly strong among lower and middle-income consumers,” said Joanne Hsu, the survey director. “Consumers continue to note multiple vulnerabilities in the economy, with rising risks to business conditions, labor markets, and inflation.”

The new numbers come amid indications that the labor market is sputtering.

The economy added just 22,000 jobs in August, and the unemployment rate rose to 4.3%. Also, the July jobs report revealed that some 258,000 fewer jobs were added in May and June than previously reported. 

Additionally, the government announced that labor market growth for the 12 months ending in March was 911,000 jobs fewer than previously reported.

Not only did consumer sentiment fall this month, but long-run inflation expectations trended up, a worrying indicator.

While year-ahead inflation expectations held steady at 4.8%, long-run inflation expectations ticked up for the second month in a row to 3.9%. That is higher than inflation is currently clocking in at and might indicate consumers expect President Donald Trump’s tariff agenda to raise prices in the coming months.

Still, long-run inflation expectations are lower than the 4.4% level that was seen in April after Trump unveiled his aggressive tariff agenda. Hsu said consumers have expressed continuing concerns with the tariffs going into September.

“Trade policy remains highly salient to consumers, with about 60% of consumers providing unprompted comments about tariffs during interviews, little changed from last month,” she said.

The Federal Reserve considers healthy long-run inflation to be 2%. Inflation, tracked by the consumer price index, rose to 2.9% in August.

FED RATE CUTS COULD BRING HOUSING RELIEF SOUGHT BY TRUMP

The Fed is meeting next week and is all but certain to conduct its first interest rate cut of 2025 and of Trump’s second term in office. The weaker jobs data and indications of a slowing labor market have bolstered that likelihood.

“The U.S. economy faces risks in the view of the consumer, and this makes a Fed rate cut all the more likely next week,” said Chris Rupkey, chief economist at FWDBONDS. “If the consumer is not winning, the economy won’t be either. Bet on it. Economic growth is set to stall.”