Consumer Confidence Further Wanes as Expectations Slump to 13-Year Low: Implications for Investors

The latest consumer sentiment data paints a dire picture of economic optimism, with expectations hitting levels not seen since the aftermath of the Great Recession. Both the University of Michigan and The Conference Board report a historic decline in consumer confidence, driven by trade policy uncertainty, surging inflation expectations, and fears of a resurgent labor market slowdown. For investors, these trends signal heightened risks in consumer-facing sectors while highlighting opportunities in defensive assets.

The Data: A Historic Downturn in Expectations

The University of Michigan’s April 2025 Index of Consumer Expectations fell to 47.3, the lowest since 2009, marking a 37.9% drop from April 2024. The broader Sentiment Index slumped to 52.2, its fourth consecutive monthly decline and the fourth-lowest reading in its 73-year history. Meanwhile, The Conference Board’s Expectations Index dropped to 54.4—its lowest level since October 2011—indicating pervasive pessimism about income, employment, and business conditions.

The deterioration is broad-based, with middle-income households hardest hit. Year-ahead inflation expectations surged to 6.5%, the highest since 1981, while long-run expectations climbed to 4.4%, signaling a loss of faith in the Federal Reserve’s ability to control prices.

What’s Driving the Decline?

Three key factors are eroding consumer confidence:

1. Trade Policy Uncertainty: A partial tariff reversal in April softened the final April reading, but fears of a full-scale trade war persist. Consumers anticipate higher prices on imported goods, squeezing disposable income.
2. Inflation Fears: With annual inflation expectations hitting 7%, households are bracing for further declines in purchasing power, particularly as student loan repayments resume and pandemic-era savings dwindle.
3. Labor Market Anxiety: The share of consumers expecting fewer jobs in six months jumped to 32.1%—a level last seen during the 2009 recession.

Sector-Specific Implications for Investors

The data underscores a divergence in investment opportunities:

• Consumer Discretionary Sectors: Expectations for big-ticket purchases like autos and homes are plummeting. The Conference Board’s six-month moving average for home buying plans fell to a 2½-year low. .
• Defensive Sectors: Utilities and healthcare—resistant to economic cycles—may outperform. Investors should favor companies with stable cash flows and pricing power.
• Bond Market Risks: Rising inflation expectations could pressure Treasury yields, though the Fed’s “wait-and-see” stance may limit near-term rate hikes.

The Fed’s Dilemma and Market Risks

The Federal Reserve faces a precarious balancing act. While low unemployment and stable layoffs suggest some labor market resilience, the sharp decline in consumer sentiment raises recession risks. Fed officials will monitor inflation expectations closely; if they remain elevated, it could force a policy shift.

The data also highlights a disconnect between sentiment and spending. Pre-tariff buying temporarily boosted retail sales, but the Conference Board notes that actual consumption patterns remain “distorted.” Investors should remain cautious until clearer signals emerge.

Conclusion: Navigating a Pessimistic Landscape

The April 2025 consumer confidence data underscores a critical inflection point. With expectations at a 13-year low and inflation fears at a 45-year high, the risks of a synchronized slowdown in consumer spending and economic growth are mounting.

For investors, the path forward requires a mix of caution and strategic opportunism:
- Reduce exposure to consumer discretionary stocks: The S&P 500 Consumer Discretionary sector has underperformed utilities by 18% over the past year.
- Focus on defensive assets: Utilities and healthcare sectors, which have held up better in volatile markets, offer a hedge against declining sentiment.
- Monitor inflation expectations: A . If expectations remain above 4.5%, bond yields could rise further.

While the Fed’s accommodative stance provides some support, the data suggests that the economy is increasingly vulnerable to external shocks. Investors would be wise to prioritize liquidity and diversification, preparing for a potential slowdown while capitalizing on pockets of undervalued opportunities. The message is clear: in an era of heightened uncertainty, patience and prudence will define success.