Daily Briefing 2/21/25
Consumer Confidence (UofM)
The University of Michigan's consumer sentiment index for the US was significantly revised from its flash reading, down more than three points to just 64.7 in February 2025, marking the lowest level since November 2023. The current economic conditions index dropped to 65.7, and the expectations sub-index decreased to 64. The decline was consistent across all age, income, and wealth groups, primarily driven by a 19% plunge in buying conditions for durables due to anticipated tariff-induced price hikes. Personal financial expectations and short-term economic outlooks fell by almost 10%, while the long-term economic outlook dropped by 6% to its lowest point since November 2023. Price expectations for next year remained at 4.3%, but the five-year outlook was raised to 3.5%, the largest month-over-month rise since May 2021 and highest overall in over two decades.
Interpretation
The sharp downward revision of the University of Michigan consumer sentiment index for February 2025 reflects a growing pessimism among American consumers, consistent with the accelerating economic downturn we’re now finding in more macroeconomic accounts. The headline index fell to 64.7, a substantial three-point drop from the preliminary estimate of 67.8, signaling a significant shift in consumer outlook from only the remaining respondents in the survey panel. This revision places consumer sentiment at its lowest level since November 2023, indicating increasing economic anxiety.
Both the current economic conditions index and the expectations sub-index were also revised downward by three points each, reaching 65.7 and 64, respectively. These revisions suggest that consumers are becoming more cautious about their financial situation and future economic prospects. The decline was uniform across all demographic groups, highlighting a widespread loss of confidence mainly focused on jobs, incomes, and the ability to afford any additional price changes.
The data reveals a considerable decline in expectations for personal finances and the short-term economic outlook, both dropping by nearly 10% - once again, the dramatic loss of momentum after 2024. This reflects growing anxiety about income stability and economic performance in the near term. The long-term economic outlook fell by about 6%, reaching its lowest point since November 2023, further illustrating the pervasive sense of economic decline.
Of particular concern is the rise in price expectations. Year-ahead price expectations surged to 4.3%, the highest since November 2023, while the five-year outlook increased to 3.5%, the most significant monthly rise since May 2021. This marks the highest five-year price expectations in about two decades, signaling that consumers are bracing for sustained price pressures. The upward revision in price expectations appears to be largely driven by the anticipated impact of tariffs, especially among Democrats.
The data suggests that the brief economic optimism observed at the end of 2024 has dissipated, giving way to growing fears of a downturn; or, more precisely, picking back up where we left off before the final few months now that those prior artificial factors have predictably receded.
