American consumer confidence deteriorated sharply in early April, with the University of Michigan's preliminary sentiment index falling to 57.4—its lowest reading since June 2023 and worse than any economist surveyed by Reuters had expected. The decline reflected the cumulative toll of $4 gasoline prices, rising food costs, and the psychological impact of the ongoing U.S.-Iran military conflict.
One-year inflation expectations in the survey jumped to 4.6% from 3.8% in the prior month—the largest single-month increase in this series since the post-pandemic inflation surge of 2021. Five-year inflation expectations also rose to 3.4%, a level that will alarm Federal Reserve officials who have been carefully monitoring medium-term expectations as a gauge of whether the energy shock is becoming embedded in broader price psychology.
Gas Prices Take Center Stage
The proximate cause of the consumer confidence collapse is gasoline. The national average gas price rose to $3.99 per gallon by mid-week—just below the psychologically significant $4 threshold—up from $2.93 just six weeks ago. The 36% increase in fuel costs in six weeks represents one of the fastest consumer price shocks in American economic history, acting as an immediate and visible tax on household budgets.
Low- and middle-income households are disproportionately affected, as transportation costs represent a higher share of their spending. The National Retail Federation warned that consumer discretionary spending is showing early signs of retrenchment, with restaurant traffic, entertainment spending, and non-essential retail all showing negative week-over-week trends in its real-time spending tracker.
Economic Data Softens
The sentiment data is consistent with deteriorating hard economic indicators. Retail sales ex-auto fell 0.4% in March—the third consecutive monthly decline—while the Conference Board's consumer expectations index has fallen more than 20 points since January. Initial jobless claims, while still historically low at 238,000, have been rising gradually for six consecutive weeks.