University of Michigan September Consumer Sentiment Slumps to 47.8 as One-Year Inflation Expectations Rise to 4.6%

Consumer sentiment collapsed in September. The University of Michigan's headline index printed 47.8, down 7.5% from August and 13.2% from a year earlier, the second lowest reading in a series that runs back to 1952. Only May was worse, and that trough was driven by the same force: rising prices.

The damage was concentrated in the forward-looking half of the survey. The expectations measure tumbled 11.1% on the month while current conditions slipped just 1.9%, meaning households feel roughly the same about today and considerably worse about what is coming. One-year inflation expectations surged 0.6 percentage point to 4.6%, matching the June high. Survey director Joanne Hsu said "year-ahead expectations for both personal finances and business conditions plunged," and that "with a resurgence in fuel prices and trade tensions, consumers anticipate greater pressures on their pocketbooks to come".

The fuel channel is visible in the same morning's BLS data. Gasoline prices rose 3.9% in August and are up 27.4% from a year ago, while fuel oil soared 10.1% on the month and 52% annually. Energy is the most salient price most households see weekly, which is why it moves survey expectations out of proportion to its weight in the index itself.

For markets the awkward part is that this lands the same day as a 3.4% annual CPI print, and traders pushed odds of a Federal Reserve hike next week past 85% on the back of it. Rising household inflation expectations are exactly the variable the Fed cites when it argues that expectations risk becoming unanchored, so a weak sentiment number here cuts toward tightening rather than away from it. Consumer-facing names may see the expectations collapse show up in discretionary spending before it shows up in the reported data, and the next read on whether this is a fuel-price spike or something more durable comes with the final September reading.