Consumer sentiment took a significant downturn in March, as revealed by the University of Michigan’s latest survey. The survey shows a stark divide between Democrats and Republicans regarding economic expectations, with Democrats’ outlook hitting an all-time low.
The overall consumer sentiment index fell to 57.9, down from 64.7 in February. This marks the lowest level since November 2022. While all income levels and age groups reported lower sentiment, Democrats experienced the most dramatic decline. Their expectations index plummeted to 28.2, a figure lower than during the 2008 financial crisis, the COVID-19 pandemic, and even during Donald Trump’s presidency.
In contrast, Republicans remain optimistic, with their expectations index sitting at 95.7. This creates a staggering 67.5-point gap, the largest partisan divide ever recorded in this survey. Independent voters also saw a decrease in their expectations, dropping to 51.8, which brings them closer to Democrats than they have been in years.
The survey highlights a historical trend where consumer expectations often reflect the party in control of the White House. Following Trump’s election in 2016, Republican confidence surged, while Democratic sentiment spiked after Biden’s victory in 2020. However, the current gap of 67.5 points is unprecedented, even surpassing the 64.6-point divide seen in early 2017 after Trump’s inauguration.
The findings illustrate the contrasting views on the economy under President Trump’s second term. Republicans are generally hopeful, anticipating benefits from lower taxes and business-friendly policies. On the other hand, Democrats are increasingly worried about inflation, trade policies, and overall economic uncertainty.
Interestingly, inflation expectations have shifted along party lines. For most of Biden’s presidency, Republicans expected higher inflation than Democrats. However, now Democrats anticipate inflation to rise by 6.5% over the next year, a sharp increase. Republicans, conversely, expect inflation to be just 0.1%. This marks a significant change, with the gap between the two groups swinging to -6.4 percentage points, the largest negative gap recorded.
The overall rise in inflation expectations is concerning for all political groups. Consumers now expect prices to increase by 4.9% over the next year, up from 4.3% in February. This is the highest expectation since 2022. Long-term inflation expectations also rose, jumping from 3.5% to 3.9%, marking the largest one-month increase since 1993. Democrats and Independents felt the impact of these inflation concerns the most, with their expectation indexes dropping significantly.
The survey also uncovered growing worries about government policy and trade. Nearly half of the respondents mentioned tariffs as a concern, particularly in light of Trump’s recent announcement of new tariffs on imports from Mexico, Canada, and China.
Financial markets have reacted to this uncertainty. The S&P 500 saw some recovery after a volatile week, while the U.S. dollar weakened amid speculation about future Federal Reserve policies. Although Fed officials hinted at potential rate cuts later this year, high inflation expectations could complicate those plans.
Overall, consumer confidence has declined for three consecutive months. Since December, sentiment has dropped by 22%. If spending habits reflect this decline in sentiment, the economy may face weaker consumer demand in the coming months, with politics playing a significant role in this downturn.