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US Consumer Sentiment Crashes to Near-Historic Lows in September
As of September 30, 2024, the University of Michigan’s Consumer Sentiment Index dropped to its second lowest reading on record, losing 7.5% compared to August. The index now sits just above the pandemic-era trough of April 2020, reflecting deepening pessimism among American households.
The steep decline, driven by persistent inflation and elevated borrowing costs, has caught many economists off guard. “We expected a modest retrenchment, but this is a full-blown retreat,” said Dr. Emily Harris, senior economist at the Brookings Institution. “The cumulative weight of high prices, stagnant real wages, and a cooling labor market is finally breaking consumer morale.”
The sentiment index is a closely watched bellwether for future spending, which accounts for roughly 70% of US economic activity. The September reading signals that households are bracing for more pain ahead, despite the Federal Reserve’s pivot to rate cuts earlier this year.
Every major demographic group reported a drop in confidence. Lower-income households, already squeezed by rent and grocery costs, recorded the sharpest fall. Wealthier consumers, though still better positioned, also turned more cautious, citing uncertainty around stock market volatility and geopolitical tensions.
Notably, the index for expectations about the next year plunged even more steeply than the current conditions component. “Americans are not just unhappy with today; they see the future getting worse,” noted Harris. The one-year economic outlook fell to levels not seen outside of major recessions.
Although headline CPI has moderated from its 2022 peak, many consumers say they still feel the sting of higher prices. Gasoline prices remain volatile, and insurance costs continue to climb. The survey’s measure of inflation expectations over the next year rose to 4.2%, a four-month high.
“People don’t care about year-over-year statistics; they care about whether their paycheck covers the same basket of goods,” said Mark Zandi, chief economist at Moody’s Analytics. “That gap is still wide, and it’s eroding confidence every month.”
The September 2024 reading of 60.3 is just 0.5 points above the April 2020 all-time low of 59.8. The previous record low before COVID was 61.6, set during the 2008 financial crisis. This comparison underscores the severity of the current sentiment crisis.
The 7.5% month-over-month drop is also one of the largest on record, rivaling the declines seen at the onset of the pandemic and during the oil shock of the 1970s. “This is not a soft patch; this is a hard landing in consumer psychology,” warned Peter Schiff, CEO of Euro Pacific Capital.
A sustained slump in sentiment typically foreshadows weaker retail sales and slower GDP growth. Already, preliminary data show that consumer spending on durable goods—like cars and appliances—fell in September.
“If consumers stop spending, the economy stops growing,” said Schiff. “The Fed’s rate cuts are a band-aid on a bullet wound. The real issue is the loss of purchasing power.”
Some analysts, however, argue that the sentiment survey may be overstating the gloom. “Sentiment and spending don’t always move in lockstep,” countered Sarah House, senior economist at Wells Fargo. “Households still have excess savings from the pandemic, and the labor market, while softening, has not fallen apart.”
Still, the breadth of the decline and its proximity to historical lows make it impossible to dismiss. Market participants are now pricing in a higher probability of a recession in the first half of 2025.
The University of Michigan survey will release its final September reading early next week, but the preliminary data released Friday is already reverberating through financial markets. The Dow Jones Industrial Average fell 1.3% on the news, while bond yields dropped as investors sought safe havens.
Looking ahead, the October report will be critical. Key events to watch include the upcoming Federal Reserve meeting, the release of September jobs data, and the ongoing college debt repayment restart. Any deterioration in labor conditions could push sentiment even lower.
For now, the message from American consumers is clear: the “vibecession” is real, and it is deepening.
