Consumer Sentiment Index Registers September Decline
The Michigan Consumer Sentiment Index (MCSI) declined in September 2025, falling 5.3% from August to a final reading of 55.1. This decrease reflects a broad-based deterioration in consumer attitudes toward economic conditions, marking the index's lowest level since May and highlighting persistent concerns over inflation and a softening labor market.
Key Metrics Indicate Waning Confidence
The September 2025 final results for the Surveys of Consumers at the University of Michigan revealed a notable contraction across key components. The overall Index of Consumer Sentiment dropped from 58.2 in August to 55.1, representing a 5.3% monthly decline and a significant 21.4% reduction year-over-year. Both sub-indexes also deteriorated: the Current Economic Conditions Index (CECI) fell for the second consecutive month to 60.4, down 2.1% from August, while the Index of Consumer Expectations (CEI) registered its third straight monthly decline, reaching 51.7, a 7.5% decrease from the prior month. This current level of 55.1 places the MCSI at the 1st percentile of its 573 monthly data points since 1978, indicating an exceptionally low level of consumer confidence that is below the index's value at the start of all six recessions recorded since its inception.
Market Reaction and Sectoral Impact
The pronounced dip in consumer sentiment carries direct implications for sectors heavily reliant on discretionary spending. On September 25, 2025, the U.S. Consumer Discretionary sector experienced a notable downturn, shedding 1.47%. This decline contributed to a broader market retreat and underscores the vulnerability of companies catering to non-essential purchases. While consumers with larger stock holdings saw their sentiment hold steady, the decline was evident across various demographic groups, including age, income, and education, particularly impacting those with smaller or no holdings. This divergence suggests a bifurcated economic experience, with broader consumer apprehension potentially translating into reduced sales volumes and increased promotional activity for retailers.
Inflation and Labor Market Concerns Persist
The primary drivers behind the erosion of consumer confidence are the enduring concerns over high prices and the evolving labor market. Joanne Hsu, Director of the Surveys of Consumers, noted, "Consumers continue to express frustration over the persistence of high prices, with 44% spontaneously mentioning that high prices are eroding their personal finances, the highest reading in a year." This sentiment is further compounded by a softening outlook for incomes and personal finances, as macroeconomic expectations for labor markets and business conditions have fallen. While year-ahead inflation expectations receded slightly to 4.7% from 4.8% last month, long-run inflation expectations moved up for the second straight month to 3.7%, signaling that consumers anticipate elevated price levels for an extended period. This dynamic places consumers under pressure from both persistent inflation and the risk of weaker labor markets.
Broader Economic Context and Federal Reserve Stance
The sustained period of low consumer confidence suggests a challenging economic environment. Consumer spending constitutes approximately 70% of U.S. GDP, and a retrenchment in this area could significantly impact overall economic growth. According to a PwC survey, Americans are expected to reduce holiday spending by an average of 5% in 2025, the most significant drop since 2020, with Gen Z respondents anticipating a 23% reduction. This aligns with S&P Global Ratings Economics' revised forecast for U.S. economic expansion, now projecting 1.9% GDP growth in 2025, a decrease from 2.5% in 2024.
The Federal Reserve faces a complex monetary policy challenge amidst these signals. While the decline in consumer sentiment points to a potential slowdown in domestic economic activity, persistent, above-target inflation remains a concern. As Fed Chair Jerome Powell acknowledged, there is "no risk-free path" forward for the central bank. Market expectations for future interest rate cuts may be "too aggressive," according to S&P Global Ratings, as the Fed maintains a data-dependent stance. The 10-year U.S. Treasury rate is forecast to remain near 4.0% for the remainder of 2025, reflecting continued vigilance in the financial markets regarding the trajectory of interest rates and economic growth.
Looking Ahead
The coming weeks will be critical for assessing the trajectory of consumer behavior and the broader economy. Investors will closely monitor upcoming economic reports, particularly those related to inflation and employment, for further indications of market health. The evolving sentiment, especially during the crucial holiday shopping season, will dictate the performance of consumer-facing businesses. Companies in the Consumer Discretionary sector and those offering high-ticket items may need to recalibrate strategies to navigate a more cautious consumer landscape. The Federal Reserve's communications will also be under scrutiny as policymakers weigh the dual mandates of price stability and maximum employment against a backdrop of easing consumer confidence and persistent inflationary pressures.
source:[1] Consumer Sentiment Down 5% In September Amid Economic Concerns | Seeking Alpha (https://seekingalpha.com/article/4826317-cons ...)[2] Surveys of Consumers - University of Michigan (https://data.sca.isr.umich.edu/ ...)[3] Consumer Sentiment Down 5% in September Amid Economic Concerns - dshort (https://vertexaisearch.cloud.google.com/groun ...)