By Sabrina Escobar

Americans are feeling uneasy about the economy, and it's starting to show. Consumer sentiment slid for the third month in a row in March.

The University of Michigan's consumer sentiment index fell to a reading of 57.9 in the first weeks of March, according to preliminary figures released Friday. Economists were expecting the index would fall to a reading of 64 from February's 64.7.

"Many consumers cited the high level of uncertainty around policy and other economic factors; frequent gyrations in economic policies make it very difficult for consumers to plan for the future, regardless of one's policy preferences," said Joanne Hsu, director of consumer surveys at the University of Michigan. "Consumers from all three political affiliations are in agreement that the outlook has weakened since February."

Inflation expectations for the year ahead jumped to 4.9% this month from 4.3% in February, marking the highest reading since November 2022.

Long-run inflation expectations surged to 3.9% from 3.5% in the prior month. This is the largest monthly increase since 1993, Hsu said.

This is breaking news. Read a preview of consumer sentiment below and check back for more analysis soon.

Consumer sentiment has slipped in recent months, raising concerns from investors, economists, and company executives that shaky confidence could weigh on spending.

The initial reading of the University of Michigan's consumer sentiment index for March, scheduled for Friday morning, should give economists another clue into whether the crisis in confidence could translate to a longer downturn in economic growth.

The index will tick down to 64 from February's 64.7, according to FactSet consensus estimates.

Economists have long tracked consumer sentiment as a forward-looking gauge into spending. In theory, if people feel more confident about their economic prospects, they're more likely to shop, whereas if they are more uncertain about the outlook, they will spend less and start saving up.

Yet in the past five years, there has been little correlation between sentiment and spending. Sentiment plummeted during the Covid-19 pandemic, reaching all-time lows in 2022. And although the index has notched some gains since then, it has failed to rebound to its prepandemic levels. Spending recovered quickly after an initial dip in March of 2020, and has been on a steady upward trend since.

The question now is whether the latest wave of economic uncertainty prompted by the Trump administration's sweeping policy changes -- such as tariffs -- will finally bridge the gap between sentiment and spending.

There are early signs it might: Consumer sentiment fell in the first two months of the year, and January retail sales dropped 0.9% from December. Retailers and other consumer-facing companies have warned that February got off to a soft start. Delta Air Lines on Tuesday said revenue for the current quarter would fall $500 million short than the company previously projected -- partially because the recent spate of airplane accidents spooked customers, but also because uncertainty weighed on demand.

"There was something going on with economic sentiment, something going on with consumer confidence, and we were seeing that very much in the close-in bookings," CEO Edward Bastian said speaking at a conference Tuesday.

Still, a couple of months of data isn't enough to call a trend reversal, making the next round of releases critical for assessing consumer behavior. Indeed, on a seasonally adjusted basis, retail sales for February are projected to rise 0.8% from the prior month, according to FactSet. The report is scheduled to be released Monday morning.

That said, the warnings from retailers and companies like Delta open up the possibility that the data come in softer than expected. Bank of America's aggregated credit and debit card data found spending per household fell 2.3% year over year last month, compared with a 1.9% increase in January. Seasonally adjusted spending rose 0.3% month over month.

"There were some signs that January's retail sales figures were influenced by factors other than organic trends in household spending," said Jason Pride, Chief of Investment Strategy and Research at Glenmede. "Time will tell whether consumer spending is on a sustained downshift which, all else equal, should contribute to further disinflation."

Write to Sabrina Escobar at sabrina.escobar@barrons.com

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March 14, 2025 10:07 ET (14:07 GMT)

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