Key Consumer Sentiment Gauge Unexpectedly Fell in March

A gauge of consumer sentiment fell for the first time in four months in March, even before the financial turmoil caused by the collapse of Silicon Valley Bank and Signature Bank.

The University of Michigan’s preliminary March Consumer Sentiment Index (MCSI) dropped to 63.4 from 67, below economists’ estimates of an unchanged reading and the lowest level since December. The reading of current economic conditions dipped 6.1% to 66.4, and the Index of Consumer Expectations dropped to 61.5 from 64.7. Both also missed forecasts.

The decrease in the Consumer Sentiment Index "was already fully realized prior to the failure of Silicon Valley Bank," when about 85% of the interviews for the survey had already been completed, noted Joanne Hsu, director of the consumer survey. She explained that, overall, all the components of the index worsened relatively evenly, "primarily on the basis of persistently high prices." She added that created downward momentum for sentiment leading into last week’s banking worries. 

Inflation Expectations Down

Hsu pointed out that consumers’ inflation expectations for the year ahead fell to 3.8% from 4.1% last month, the lowest since April 2021. Respondents anticipated inflation over the next five years to be 2.8%, the lowest in six months. 

However, she explained that the "ongoing turbulence in the financial sector," along with uncertainty about how the Federal Reserve will respond, means the outlook for inflation will likely be volatile in the months ahead.