Consumer sentiment fell again in September and is now at the level it was during the outset of the 2008 financial crisis, a remarkable dynamic driven by inflation.
Consumer sentiment fell to 55.1, down from 58.2 in August and below economists’ expectations, according to the latest reading of the University of Michigan Consumer Sentiment Index for September. Consumer sentiment is now down 21.6% from a year ago. September marked the lowest such reading since May. Sentiment was even lower in April and May of this year than it is now.
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Consumer sentiment hit a low of 55.3 in November 2008, as the economy was in the midst of the Great Recession, the stock market was plunging, and unemployment was trending upward.
But right now, the stock market is hitting all-time highs, and the unemployment rate is still at a low 4.3%. This time around, the major driver of the souring sentiment is too-high inflation and concerns that tariffs could further cause cost-of-living problems for consumers, according to Joanne Hsu, the director of the sentiment survey.
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Hsu pointed out to the Washington Examiner that sentiment sank even lower than it is now back in 2022 at the peak of the inflationary wave.
“So we saw that, in 2022, people were very unhappy about inflation,” Hsu said. “It showed up in their sentiment numbers, and they recognized that inflation slowed down last year, but specifically this year, a lot of people are concerned that with the escalation of tariff policy, the extremely high tariffs that are being implemented or being announced, could pass through to higher inflation and prices that consumers pay.”
Inflation is still running above target. The Federal Reserve considers 2% to be healthy inflation, but the consumer price index is now running at about 2.9%, and in the Fed’s preferred gauge, inflation rose one-tenth of a percentage point to 2.7% for the year ending in August.
Also, year-ahead inflation expectations are running at 4.7%, and long-run inflation expectations are running at 3.7%. That is higher than inflation is currently clocking in at and might indicate consumers expect President Donald Trump’s tariff agenda to increase prices in the coming months.
And while the labor market is steady, there are signs it is weakening. The economy added just 22,000 jobs in August, and recently, there have been big downward revisions in past jobs data.
Hsu said that, unlike in 2022, consumers are also expressing concerns about the labor market. She said consumers broadly perceive the jobs market to be weaker now than it was at the start of the year.
There are fears that the labor market could weaken even further and unemployment could start rising, although Fed Chairman Jerome Powell recently characterized the economy as being in a “low-fire, low-hire” state.
And inflation is making Americans perceive the overall economy as being in worse shape.
“I would say it’s more the convergence of negative outlooks for prices and the job market,” Mark Hamrick, senior economic analyst at Bankrate, told the Washington Examiner about the latest sentiment readings.
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Hamrick described 2008 as among the most horrendous economic events the country has experienced. He noted, though, that inflation over the past few years has affected households broadly, whereas the pain of recessions is concentrated more narrowly among those who suffer unemployment.
“In many ways, inflation causes substantially more casualties than a recession, even a severe recession,” he said.