U.S. consumer sentiment dropped in September to its lowest reading since May, according to the University of Michigan Survey of Consumers. This signals that worries about inflation, job security and overall economic direction are firmly on people's minds.
What Does Consumer Sentiment Mean?
Consumer sentiment measures the level of optimism or pessimism people feel about their personal finances and the overall economy. When the index is high, it typically indicates that households are confident about their spending, which can stimulate economic growth. But when it's low, like September's 55.1 print, it means that people are worried, either about jobs, rising prices or future income, and may cut back on purchases or delay financial decisions.
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Because consumer spending makes up roughly two-thirds of U.S. economic activity, changes in consumer sentiment can be an early warning sign of slower growth.
What's Causing the Lower Consumer Sentiment?
A few things can cause consumer sentiment to drop, including the following:
- Uncertainty in the job market: Though the labor market has held up reasonably well overall, concerns about layoffs, hiring slowdowns, AI taking over and wage stagnation are still making people worried.
- Trade policy & tariffs: Nearly 60% of the Survey of Consumer respondents mentioned tariffs unprompted during interviews, according to Joanne Hsu, the director of the survey. Many see them as a threat to prices, economic growth and global stability.
- High prices and inflation: Even though overall inflation has cooled from its peak, everyday expenses like groceries, rent and utilities are still noticeably higher than they were a few years ago.
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Consumer sentiment isn't just about how people feel. It also ties into economic behavior. When people feel uncertain or anxious, they tend to pull back on major purchases and save more. That can dampen overall consumer spending, which accounts for a significant portion of U.S. economic activity.
That said, people with bigger stock portfolios kept their confidence steady last month, even as everyone else grew more cautious, according to Hsu. A resilient stock market has helped these higher-income families feel more secure in their finances and savings. Plus, since their nest eggs give them a cushion, they're less likely to pull back on spending even while lower income families are tightening their budgets.
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