A disastrous report: U.S. consumer sentiment plunges again, by 11 percent in March from February, much more than expected, after back to back drops in January and February, while inflation expectations extend their frightening run. The March preliminary reading on consumer sentiment falls to an astonishing 57.9 from 64.7 in February, and from 67.8 in January, and 74.0 in December. The Econoday forecast looked for a modest dip to 64.0 for March.

Many consumers cited the high level of uncertainty around policy and other economic factors; frequent gyrations in economic policies make it very difficult for consumers to plan for the future, regardless of one's policy preferences, the report says. Consumers from all three political affiliations are in agreement that the outlook has weakened since February.

While current economic conditions were little changed, expectations for the future deteriorated across multiple facets of the economy, including personal finances, labor markets, inflation, business conditions, and stock markets, the report says.

Preliminary year-ahead inflation expectations rise to 4.9 percent in March from 4.3 percent in the February final report, a considerable rise after an already remarkable jump from 3.3 percent in January. Five-year inflation expectations come in at 3.9 percent in March versus 3.5 percent in February and 3.2 percent in January.

The 1-year inflation expectations figure shows the highest reading since November 2022 with three consecutive months of unusually large increases of 0.5 percentage points or more. For 5-year expectations, March is the largest month-over-month increase seen since 1993.

The report notes worsening sentiment"consistently across all groups by age, education, income, wealth, political affiliations, and geographic regions."

Consumer sentiment fell by 10 percent to 64.7 in February from 71.7 in January as consumers fear tariffs, economic turmoil and inflation. The consensus sees the index remaining depressed at 64.0 in the preliminary March report.

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.