Consumer Confidence Plummets as Inflation Fears Surge

Consumer confidence in the United States has taken a nosedive, falling to its lowest level in over a decade. The Conference Board Consumer Confidence Index® plummeted by 7.2 points in March 2025, landing at 92.9. This marks the fourth consecutive monthly decline and the lowest reading since January 2021. The Expectations Index, which gauges consumers' short-term outlook for income, business, and labor market conditions, dropped to 65.2, well below the threshold of 80 that typically signals an impending recession.

The decline in consumer confidence is closely tied to rising inflation fears. The annual inflation rate for the United States was 3% for the 12 months ending January 2025, up from 2.9% the previous month. This increase, coupled with the impact of tariffs on imported goods, has left consumers feeling the pinch. The average 12-month inflation expectations rose from 5.8% in February to 6.2% in March, indicating that consumers are bracing for sustained high prices.



The factors driving this rise in inflation fears are multifaceted. Tariffs on key household staples like eggs and other essential items have consumers worried about the impact on their budgets. Additionally, the proportion of consumers anticipating a recession over the next 12 months remained steady at a nine-month high, reflecting a sense of economic uncertainty. This pessimism is likely to influence consumers' spending and saving behaviors in the near future.

For instance, purchasing plans for both homes and cars have declined on a six-month moving average basis. However, there was a surprising increase in intentions to buy big-ticket items like appliances and electronics, which may reflect a desire to purchase before impending tariffs lead to price increases. Consumers' overall intentions to purchase additional services in the months ahead were little changed, but their priorities shifted. Fewer consumers planned to spend more on movies and live entertainment or sports, and more planned to spend on outdoor activities and travel.

The potential long-term economic implications of this correlation are significant. Consumer spending accounts for about two-thirds of U.S. economic activity, and a sustained decline in consumer confidence could lead to a decrease in spending, which in turn could slow down economic growth. Additionally, the increased pessimism about future employment prospects could lead to a decrease in consumer spending on big-ticket items, further slowing down economic growth.

Moreover, the decline in consumer confidence could also lead to a decrease in business investment, as businesses may become more cautious about the economic outlook and delay or cancel investment plans. This could further slow down economic growth and lead to a potential recession. Therefore, it is crucial for policymakers to address the concerns of consumers and businesses and take steps to stabilize the economy and restore confidence.