Author: Zhou Ziheng

The University of Michigan Consumer Sentiment Index Hits Record Low in 74 Years

——Analysis and Outlook on the Current Economic Situation in the United States

1. Latest Reading of Consumer Sentiment Index and Interpretation of Historical Low

In April 2026, the preliminary value of the University of Michigan Consumer Sentiment Index for the United States was 47.6, marking the lowest record since the start of this survey 74 years ago. This index has been compiled since 1946 and covers consumers' current evaluations and future expectations regarding personal financial situations, overall business environment, and conditions for purchasing durable goods. For more than a year, the index has lingered at low levels, touching bottom during the "Liberation Day Tariff" event last April. Although there was a slight rebound afterwards, it failed to consolidate persistently.

Compared to historical crises, this low point is particularly striking: it is below the levels during the 2008 financial crisis, weaker than during the early stages of the COVID-19 pandemic, and closer to readings during the recession of the 1980s, without an accompanying obvious collapse of the financial system or large-scale bank failures. This phenomenon reflects profound changes in economic relationships in the post-pandemic era. Traditional leading indicators such as yield curve inversion or the Sam rule have lost their predictive power; consumer psychology is no longer simply driven by macro data but is compounded by multiple factors such as deteriorating mental health, declining institutional trust, and social polarization. The index's sluggishness is not a short-term fluctuation but rather a concentrated reflection of long-term structural pressures.

2. Main Reasons for Low Sentiment: Persistently High Prices and New Geopolitical Shocks

Consumers repeatedly emphasize that high prices are the main negative factor in recent years. Even though inflation has fallen from its peak in 2022 and stabilized above the Federal Reserve's target, the price level itself continues to strain household budgets. The conflict in Iran that erupted in March 2026 further intensified these worries. Consumers believe that geopolitical turmoil will drive up energy prices and, through supply chains, extend to a broader range of consumer goods, leading to a significant increase in short-term inflation expectations.

After the outbreak of the conflict, gasoline price expectations quickly soared to several times their previous levels, directly reflecting a deterioration in personal financial evaluations. Consumers do not equate gasoline prices with overall inflation, but as a visible cost of daily life, it has become an important trigger for the decline in confidence. At the same time, reduced dynamism in the labor market and weak income growth have placed families under dual pressure on both the expenditure and income sides, forming the core pain point of “kitchen table issues.”

3. Stock Market Hits New High While Consumer Confidence Diverges

Despite record low consumer confidence, the S&P 500 index approached all-time highs. This divergence stems from differences in expectations between market participants and ordinary consumers. Analysts and investment institutions primarily drive stock prices based on expectations of improved corporate earnings: either through cost-cutting to achieve profit expansion or by hoping for a demand recovery. In contrast, consumers, as the subjects of demand, perceive economic weakness more directly, especially among lower-income groups.

Surveys show that high-wealth consumers holding large stock portfolios have quickly recovered their confidence from previous lows and have shown strong adaptability to the impact of the "Liberation Day Tariff." Conversely, the low-wealth group continues to drag down the overall index, as they can hardly benefit from rising asset prices. Consumers are also cautious about the productivity improvements brought by artificial intelligence, feeling more the current economic weakness rather than future dividends. This divergence indicates that the optimism in the stock market primarily serves the capital side, rather than broadly reflecting real consumer capability.

4. Stability of Survey Methodology and Changes in Historical Context

The core questions of the University of Michigan Consumer Sentiment Index have remained unchanged since 1946, focusing on personal finances, business conditions, and willingness to purchase durable goods, ensuring long-term comparability. The survey methods have been adjusted multiple times with technological advancements: from initial face-to-face interviews to fixed telephones, mobile phones, and now online surveys, adapting to changing communication habits. These methodological updates are not the cause of the current low readings but necessary measures to ensure data representativeness.

In the post-pandemic era, traditional economic relationships have fractured, compounded by worsening mental health issues among young people, declining institutional trust, and political polarization, leading to a more negative overall perception of the economy among consumers. Even without a financial crisis, the aforementioned structural changes are enough to lower the index. A secondary low point was observed in June 2022, coinciding with the peak of inflation post-pandemic; now, while inflation has eased, the labor market is significantly weaker than in 2022, with consumers facing simultaneous pressures from prices and income, making the decline in confidence logical.

5. Forward-looking Significance of the Confidence Index for Future Consumer Expenditure

The Consumer Sentiment Index is one of the important leading indicators for predicting consumer expenditure. This data releases several warning signals: declining vigor in the labor market, rising credit card delinquency rates, increased use of credit, and low household savings rates. These factors collectively point to weakened consumer resilience. Although consumer spending remained high during the low confidence of 2022, thanks to strong income and asset support at the time, the current labor market can no longer provide a similar buffer.

Recent consumer spending has shown signs of slowing down. The high-wealth cohort can still maintain some demand through asset appreciation, but the middle and low-income groups struggle to keep pace. The wealth effect does exist——research shows that large investment portfolios or property appreciation can enhance the willingness to take risks, driving additional spending——but its impact is disproportionate, mainly benefiting the wealthy class. Overall, consumers are in a fragile balance, making it difficult to rely on the post-pandemic “resilient consumption” model to support economic growth.

6. Divergence in Inflation Expectations and Consumer Decision Making

The one-year-ahead inflation expectations curve is trending down, but the proportion of consumers listing high prices as the main drag on personal finances continues to rise. This divergence began after the peak of inflation in 2022: despite a decline in actual inflation, the painful memories associated with price levels have not faded. Following the conflict in Iran, short-term inflation expectations surged again, but long-term (over five years) expectations only slightly increased, indicating that consumers believe the impact is temporary.

In purchasing decisions, consumers have not exhibited large-scale "advance consumption" behavior to avoid future price increases. The proportion of "buy now to avoid price hikes" for durable goods (such as cars and housing) has only risen moderately. This reflects insufficient confidence in income: even with short-term price pressure expected, households are unwilling to take on large spending risks when budgets are tight. Although this behavior can suppress inflation in the short term, it also limits potential demand stimulation.

7. Rapid Transmission Mechanism of Consumer Psychology from the Iranian Conflict

The Iranian conflict began at the end of February, and by March 1, survey data showed significant changes, demonstrating that geopolitical shocks quickly transmit to family psychology. Gasoline price expectations jumped first, leading to declines in overall short-term inflation expectations and the confidence index. Consumers distinctly differentiate between gasoline and general prices, yet still regard them as significant sources of personal financial pressure.

This immediate reaction highlights the role of the modern information environment: conflict information spreads rapidly, prompting consumers to adjust their expectations quickly. Compared to traditional crises, the current transmission speed is faster and broader in coverage, highly consistent with the adverse scenarios in the IMF World Economic Outlook——which predicts that rising energy prices will push up inflation and drag global growth down to 2%, and U.S. consumer expectations also point to short-term economic slowdown.

8. Social Media Algorithms and Characteristics of the "Expectation Lowering" Era

The long-term low level of consumer confidence is also influenced by how information is accessed. Algorithm-driven news pushes tend to amplify emotional and negative content, forming a self-reinforcing cycle. Unlike the mid-20th century when information sources were singular, today’s 24/7 online environment makes negative economic news more likely to dominate cognition. Even as traditional media coverage declines, social platforms still exacerbate negative expectations through polarized content.

This phenomenon is not simply due to "bad news" leading to a drop in confidence; rather, it interacts with the real pressure of high prices, forming an "expectation lowering" era. Historical comparisons should be made with caution: the current composition of consumers and generational characteristics differ from the past; an absolute low level does not mean the trend is irreversible, but upward improvement still requires substantial positive support.

9. Real Situations of Consumer Finances, Credit, and Labor Market

Credit data shows that while credit card delinquency rates have fluctuated, they need to be interpreted in conjunction with lender behavior. Research from the Philadelphia Federal Reserve indicates that apparent improvements often stem from high-income groups, while mid-to-low-income families have been excluded by credit institutions and cannot enter statistics. National-level data masks layered realities.

In the labor market, consumer expectations for rising unemployment rates over the next year have exceeded two-thirds, far higher than levels at the beginning of 2025. The perceived probability of personal or family member unemployment remains high. Concerns regarding tariffs last year have shifted this year to the impact of artificial intelligence on employment, but the overall judgment is consistent: the labor market has significantly weakened compared to early 2025. Demographics show that confidence among age, income, and political party groups has declined in sync, indicating that the current deterioration transcends party lines, forming a broad consensus.

10. Future Economic Outlook and Key Monitoring Indicators

The recovery of consumer confidence depends on the duration of supply chain disruptions from the Iranian conflict, especially the restoration of navigation through the Strait of Hormuz. If disruptions become prolonged, energy prices will transmit to other consumer goods, forming a negative cycle: rising corporate costs, limited consumer purchasing power, and inhibited economic growth. If short-term shocks quickly subside, consumers are likely to adjust quickly and restore confidence in the economy.

Key indicators to monitor include the extent of gasoline price transmission to overall prices, actual data from the labor market, and the sustainability of high-wealth group consumption. Federal Reserve policies, fiscal support, and easing geopolitical situations will be important variables. In a high-uncertainty environment, consumers tend to favor conservative strategies, and the pace of economic recovery may lag behind market optimism.

Overall, the record low of 47.6 warns of potential economic vulnerabilities. Although the stock market reflects optimism from businesses, weakness on the consumer side may still constrain overall demand. Balancing growth, controlling inflation, and stabilizing employment will be necessary to gradually restore the foundation of confidence and achieve sustainable recovery.

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