US consumer confidence drops again in September as inflation fears mount

Consumer confidence in the United States weakened in September, as households reported increasing concerns about business conditions, personal finances, and long-run inflation pressures.

The metric fell for a second straight month in September.

The University of Michigan’s preliminary Consumer Sentiment Index fell to 55.4 this month from 58.2 in August, below market expectations of 58.

The drop represents a 4.8% decline, reversing some of the modest gains seen in the summer.

“Consumers continue to note multiple vulnerabilities in the economy, with rising risks to business conditions, labor markets, and inflation,” said Joanne Hsu, director of the university’s Surveys of Consumers.

“Current and expected personal finances both eased about 8% this month.”

Components signal broader unease

The details of the survey showed a broad-based weakening.

The Current Conditions Index edged lower to 61.2 from 61.7, indicating that households perceive little improvement in their immediate financial situations.

Meanwhile, the Expectations Index dropped to 51.8 from 55.9, suggesting growing unease about future prospects.

While consumers noted some improvement in buying conditions for durable goods, all other components of the index moved lower.

Inflation expectations mixed

The survey’s measure of one-year inflation expectations held steady at 4.8%, underscoring households’ concern that price growth will remain elevated in the near term.

More notably, five-year inflation expectations rose to 3.9% from 3.5%, extending a recent upward trend.

While still below the 4.4% level reached in April, the increase highlights consumer worries that inflation may prove more persistent than policymakers expect.

The Federal Reserve has closely monitored these measures for signs of a shift in inflation psychology that could make price pressures harder to tame.

Source: University of Michigan

Tariffs and trade concerns linger

Trade tensions also weighed on sentiment.

According to the survey, around 60% of respondents made unprompted references to tariffs, echoing last month’s findings and pointing to continued concern over the impact of trade policy on household finances.

“This month’s easing in economic views was particularly strong among lower- and middle-income consumers,” Hsu added, noting that tariff-related anxieties remain a significant factor shaping consumer perceptions.

Market reaction and broader implications

The weaker-than-expected data briefly weighed on the dollar, with the US Dollar Index retreating from session highs before steadying 0.2% higher at 97.70.

Analysts said the report highlights the fragile nature of consumer confidence amid slowing growth and persistent inflation risks.

Although sentiment remains above the lows seen in April and May 2025, following the initial escalation of reciprocal tariffs, economists warn that households’ caution could dampen spending — a key driver of the US economy.

The Fed, which meets next week, is unlikely to be swayed by a single sentiment reading, but the rise in long-term inflation expectations may reinforce calls within the central bank for a more cautious approach to rate cuts.