The University of Michigan released its September consumer sentiment data Friday (Sept. 26). The data showed that confidence is continuing to slip, raising questions about where spending will slow next.
Sentiment in Decline
Consumer sentiment dropped 5.3% month over month in September, leaving the index down 26% through the first nine months of 2025. Sentiment fell in six of those nine months, underscoring the persistent pressure households feel.
The breakdown showed sharper weakness in forward-looking views than in current assessments.
“Nationally, not only did macroeconomic expectations fall, particularly for labor markets and business conditions, but personal expectations did as well, with a softening outlook for their own incomes and personal finances,” Surveys of Consumers Director Joanne Hsu said in a statement.
The “expectations” index slipped 7.5% in September and now sits 29% below its December 2024 level. The “current” index, which captures views on today’s conditions, fell 2.1% in the month and has accumulated a 20% decline this year.
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Inflation’s Persistent Shadow
Inflation expectations are shifting in ways that reinforce caution. One-year price increase expectations eased slightly to 4.7% from 4.8% the month prior. Yet long-term expectations moved higher for the second month in a row, now at 3.7%.
The weight of high prices is visible in households’ own words. In September, 44% of respondents spontaneously mentioned that high prices are eroding their personal finances, the highest reading in a year.
The income-spending gap tells a similar story. Personal consumption expenditures rose 2.7% in the past year, while real disposable incomes grew just 1.9%, the Bureau of Economic Analysis found Friday. For eight straight months, spending has outpaced income.
The squeeze is forcing households to make choices. Rent, groceries, childcare and utilities are taking up more of the paycheck, while non-essentials are increasingly sidelined.
Read Across for Intent
The combination of weaker sentiment, high inflation expectations and stretched household budgets suggests that future spending intent will remain cautious. Consumers are still buying, but they are adjusting where and how much they spend. Essentials remain protected, while discretionary categories are vulnerable.
Sentiment plays a central role in this recalibration. When consumers feel uncertain about their jobs, wages or the direction of prices, they often delay or downsize purchases, even if they technically have the means. That mindset is particularly influential in big-ticket categories such as automobiles, appliances or vacations, where confidence about future income streams is critical to the decision to spend. In turn, negative sentiment can reinforce the very pullback it reflects, creating a cycle where anxiety about conditions translates into reduced demand.
As September’s sentiment data showed, consumers are not just worried about the economy in the abstract. They are recalibrating their daily lives to match thinner margins, a reality that will continue shaping spending patterns through the months ahead.
