NEW YORK — Consumer confidence collapsed to its lowest level since the depths of the COVID-19 pandemic in fresh data released Tuesday, as a toxic combination of surging energy prices, persistent inflation, and geopolitical anxiety drove the Conference Board's Consumer Confidence Index down to 88.3 in March from 92.9 in February. The reading missed the consensus estimate of 90.5 and represents a steep deterioration from January's 99.2, marking the fastest three-month decline in consumer sentiment outside of a recession or major exogenous shock since the index's modern methodology was established.
Most alarming to economists was the survey's inflation expectations component. One-year inflation expectations jumped to 5.8% in March — the highest reading since June 2022, when CPI was running above 9% — suggesting that consumers are increasingly pricing in a sustained period of elevated costs driven by oil at $118/barrel and the lagged effects of prior tariff increases on goods prices. Critically, five-year inflation expectations rose to 3.8%, well above the Fed's 2% target, raising the question of whether inflation expectations are becoming unanchored in a way that historically has required aggressive monetary tightening to reverse.
The Present Situation component of the index, which reflects consumers' assessment of current conditions, fell to 102.4 from 112.1 — the largest monthly decline since April 2020. The Expectations component, which surveys views about the six-month economic outlook, fell to a dire 78.5, well below the 80-point threshold that the Conference Board's own research associates with recession within the following year. It marks only the fourth time in 30 years that this threshold has been breached outside of an already-declared recession.
The data is immediately problematic for companies with high consumer discretionary exposure. Retail spending forecasts for Q2 are being revised lower across Wall Street, with Citigroup cutting its estimate for real personal consumption expenditures growth to 0.8% annualized from 1.9% previously. Airlines, cruise operators, luxury goods companies, and big-box retailers all saw their shares trade lower following the data release, while consumer staples and utilities — the classic defensive repositioning trades — saw modest inflows.
For the Federal Reserve, the data creates a genuinely difficult policy dilemma. Stagflation — falling growth expectations combined with rising inflation expectations — is the scenario monetary policy is least equipped to address, as rate hikes that control inflation also accelerate economic deterioration, while rate cuts that support growth risk further inflaming inflation expectations that are already elevated. Fed Chair Powell's speech Wednesday at the Peterson Institute takes on even greater importance following Tuesday's data, with investors hoping for some acknowledgment of the growth risks even as the central bank maintains its inflation-fighting credibility.