Consumer sentiment fell for the first time in six months, edging down 4% from December.
While assessments of personal finances inched up for the fifth consecutive month, both the short- and long-run business outlook weakened in January, said economist Joanne Hsu, director of the University of Michigan's Surveys of Consumers.
Sentiment declines were broad-based and seen across incomes, wealth and age groups. Buying conditions for durables softened but remained about 30% stronger than six months ago amid persistent views that purchasing now would avoid future price increases.
January's data closed on Inauguration Day, and consumers of all political leanings will continue to refine their views as President Trump's policies are clarified and implemented, Hsu said.
"Survey responses make clear that the recent partisan divergence in confidence in the economy is rooted in how consumers view Trump's proposed policies," she said.
"Some consumers believe that these policies, like tariffs, will slow inflation to a crawl. Others believe Trump's policies will lead inflation to roar back, and that buying now would help people avoid higher prices in the future. Strong spending data for vehicles and retail sales are signs that consumers are indeed acting on those beliefs with their wallets."
Consumers disagree on potential effects of anticipated policies
When directly asked about tariffs, about 19% of consumers said they believe higher tariffs are better for the economy, while 62% favor lower tariffs for the economy. The remaining 19% believe that tariffs would make little difference to the economy.
Strikingly, those reporting that higher tariffs are better for the economy expect stronger economic growth and lower inflation in the future, compared with consumers favoring lower tariffs and those who believe tariff policy has little economic impact, Hsu said. These patterns suggest that consumers expect Trump to hold true to his plan to hike tariffs and have incorporated the anticipated policy change into their economic expectations.
Labor market outlook softens despite strong incomes
Assessments of personal finances have been buoyed this month by stronger incomes. However, consumers appear to be worried that labor markets may weaken in the year ahead. Concerns about unemployment rose in January; about 47% of consumers expect unemployment to rise in the year ahead, the highest since the pandemic recession.
Expectations for consumers' own income growth in the year ahead weakened this month as well.
Consumer Sentiment Index
The Consumer Sentiment Index fell to 71.1 in the January 2025 survey, down from 74.0 in December and below last January's 79.0. The Current Index fell to 74.0, down from 75.1 in December and below last January's 81.9. The Expectations Index fell to 69.3, down from 73.3 in December and below last January's 77.1.
About the surveys
The Surveys of Consumers is a rotating panel survey at the University of Michigan Institute for Social Research. It is based on a nationally representative sample that gives each household in the coterminous U.S. an equal probability of being selected. Interviews are conducted throughout the month by web. The minimum monthly change required for significance at the 95% level in the Sentiment Index is 4.8 points; for the Current Index and Expectations Index, the minimum is 6 points.
