U.S. consumer sentiment fell again with back-to-back declines so far in 2025 with February's final reading coming in at 64.7 vs. the flash estimate of 67.8 and 74.1 in January, below expectations for 68.0 in the Econoday survey of forecasters.

"The decrease was unanimous across groups by age, income, and wealth," the report says."All five index components deteriorated this month, led by a 19 percent plunge in buying conditions for durables, in large part due to fears that tariff-induced price increases are imminent."

Consumers' expectations for personal finances and the short-run economic outlook both declined almost 10 percent in February, while the long-run economic outlook fell back about 6 percent to its lowest reading since November 2023.

The final year-ahead inflation expectations surged to 4.3 percent in February, jumping from 3.3 percent in January. This is the highest reading since November 2023 and marks two consecutive months of"unusually large" increases.

Sentiment dropped a lot more than expected to 67.8 in the preliminary reading for February from 71.1 in January as inflation fears materialized in response to the threat of tariffs. The final reading for February is not expected to change much at 68.0.

The University of Michigan's Consumer Survey Center questions households each month on their assessment of current conditions and expectations of future conditions. Preliminary estimates for a month are released at mid-month and are based on about 420 respondents. Final estimates are released near the end of the month and are based on about 600 respondents.

The pattern in consumer attitudes and spending is often the foremost influence on stock and bond markets. For stocks, strong economic growth translates to healthy corporate profits and higher stock prices. For bonds, the focus is whether economic growth goes overboard and leads to inflation. Ideally, the economy walks that fine line between strong growth and excessive (inflationary) growth.

This balance was achieved through much of the nineties and, in large part because of this, investors in the stock and bond markets enjoyed huge gains. It was during the late nineties that the consumer sentiment index hit its historic peak, reaching levels that were never matched during the subsequent 2001 to 2007 expansion nor during the long expansion following the Great Recession.

Consumer spending accounts for more than two-thirds of the economy, so the markets are always dying to know what consumers are up to and how they might behave in the near future. The more confident consumers are about the economy and their own personal finances, the more likely they are to spend. With this in mind, it's easy to see how this index of consumer attitudes gives insight to the direction of the economy. Just note that changes in consumer confidence and retail sales don't move in tandem month by month.