United States consumer sentiment fell in April from a month earlier to a record low, reflecting worries around the economic fallout from the Iran war. The University of Michigan's final April sentiment index dropped to 49.8 this month from 53.3 in March. While that was slightly improved from the preliminary reading, it remained the lowest in data back to 1978.
Inflation Expectations Surge
Consumers expect prices to rise at an annual rate of 4.7 percent over the next year, up from 3.8 percent in March, the data released on Friday showed. That was the biggest one-month increase since President Donald Trump announced sweeping tariffs last year. They saw costs rising at an annual rate of 3.5 percent over the next five to 10 years, the highest since October.
Impact of the Iran War
Sentiment has tumbled in the wake of the Iran war, which has driven up fuel costs for inflation-weary Americans. So far, though, retail sales data out earlier this week indicated consumers continue to spend on a broad range of merchandise. While the U.S. and Iran have agreed to a temporary ceasefire, the absence of a permanent deal to end the war is keeping uncertainty elevated for consumers and weighing on the outlook.
Joanne Hsu, director of the survey, said in a statement: “The Iran conflict appears to influence consumer views primarily through shocks to gasoline and potentially other prices. In contrast, military and diplomatic developments that do not lift supply constraints or lower energy prices are unlikely to buoy consumers.”
Gas Prices and Spending
Analysts have warned that gas prices, currently around US$4 a gallon, could remain elevated for months even if a deal is reached. That could continue to weigh on sentiment. Americans are enjoying bigger tax refunds, which alongside signs of front-loading of purchases, helps explain at least some of the improvement in retail activity. Still, spending risks softening in the coming months as higher energy costs add to pressure on household budgets.
Consumers expect gas prices to climb nearly 50 cents in the coming year, though expectations differed by political affiliation. Overall, nearly two-thirds of respondents expect fuel costs to be higher a year from now, the largest share since 2022.
Current Conditions and Expectations
The current conditions gauge declined in April to a four-month low, while the expectations index dropped to the lowest in nearly a year. Consumers’ perceptions of their expected financial situation was the weakest since May of last year. The survey period includes responses from March 24 to April 20.
