Consumers Bracing for Rocky Road Ahead — Evening Brief – 04.11.25

The University of Michigan Consumer Sentiment Index cratered to 50.8 in April, down from 57.0 in March and well below the 54.0 consensus forecast. This marks the fourth straight monthly decline, with the index now 30% lower than its December 2024 level. Trade war worries are dragging down confidence, with the drop cutting across all demographics—age, income, education, region, and political affiliation.

Inflation expectations are soaring. The year-ahead outlook spiked to 6.7% from 5.0%, the highest since 1981, after four consecutive months of jumps of 0.5 points or more. Long-run expectations rose to 4.4% from 4.1%, with independents showing an especially sharp increase.

“Consumers report multiple warning signs that raise the risk of recession: expectations for business conditions, personal finances, incomes, inflation, and labor markets all continued to deteriorate this month,” said Survey of Consumers Director Joanne Hsu.

Yet, a puzzling gap persists between “soft” survey data and “hard” market signals. While consumers brace for a return of high inflation, market-based breakeven rates tell a calmer story. The 5-year breakeven rate ticked up four basis points to 2.35% this week but still a whopping 450 basis points below survey expectations. The 10-year and 30-year breakeven rates edged up three basis points each to 2.22% and 2.19%, respectively, amid tariff-fueled U.S. Treasury yield spikes, but they’re far tamer than what consumers fear.

The labor market outlook is also darkening. The share of consumers expecting unemployment to rise has climbed for five straight months, doubling since November 2024 to its highest level since 2009. “This lack of labor market confidence lies in sharp contrast to the past several years, when robust spending was supported primarily by strong labor markets and incomes,” said Hsu.

The survey’s sub-indices reflect the gloom. The current conditions index slumped to 56.5 from 63.8, missing the 61.5 consensus. Consumer expectations plunged to 47.2 from 52.6, undershooting the 50.8 forecast. Overall, the sentiment index shed 6.2 points to 50.8, its weakest since June 2022. Economists had expected a softer drop to 53.8, per a Bloomberg survey.

With trade tensions flaring and unemployment fears mounting, consumers are clearly bracing for a rocky road ahead.