The University of Michigan’s final Consumer Sentiment Index for April registered 49.8, marking a new historic low as households reacted to the economic consequences of the conflict with Iran. The revised April reading edged up from an earlier preliminary 47.6 but remained below economists' expectations - the consensus of economists polled had been 48.0. By comparison, the index stood at 53.3 in March.
The slump in sentiment was widespread, crossing political affiliations and extending to consumers who hold investments in the stock market. The survey linked the deterioration in household mood to the effect of the Iran conflict on energy and commodity supply, which has lifted prices at the pump and for goods that rely on transported inputs.
Shipping disruptions in the Strait of Hormuz have elevated oil prices and fed through to higher retail costs for gasoline and diesel. In addition to fuel, prices for inputs such as fertilizers, petrochemicals and aluminum have surged and are expected to reach consumers over time. The survey noted that Tehran effectively closed the strait after the start of the war on February 28.
President Donald Trump this week indefinitely extended the ceasefire with Iran, though the U.S. Navy blockade of Iranian ports remained in place.
"The Iran conflict appears to influence consumer views primarily through shocks to gasoline and potentially other prices," said Joanne Hsu, director of the Surveys of Consumers. "In contrast, military and diplomatic developments that do not lift supply constraints or lower energy prices are unlikely to buoy consumers."
Data from the U.S. Energy Information Administration showed the national average retail gasoline price has been above $4 a gallon this month, while diesel has been well above $5 a gallon. Higher diesel costs carry the prospect of higher retail prices for goods moved by road.
A Reuters/Ipsos poll published on Friday found a clear majority of Americans blamed Trump for rising gasoline prices, a dynamic the survey said is weighing on his Republican Party ahead of November’s congressional midterm elections.
Economists cautioned that although the statistical correlation between consumer sentiment measures and actual spending can be weak, the squeeze on household finances from more costly fuel will likely push lower-income and middle-income households to cut consumption. "We expect the hit to real disposable income growth from higher gas prices will slow consumption growth," said Grace Zwemmer, a U.S. economist at Oxford Economics. "The impact will be mostly felt by low- and middle-income households, since a larger share of their overall spending goes toward gasoline."
The survey showed consumers’ one-year inflation expectations rose to 4.7% in April from 3.8% in March. That April reading exceeded the levels that prevailed earlier in 2024 and remained well above the roughly 2.3% to 3.0% range seen in the two years before the COVID-19 pandemic. Expectations for inflation over the next five years climbed to 3.5% from 3.2% the prior month.
Rising inflation expectations came alongside a separate S&P Global survey released on Thursday showing a measure of prices charged by businesses for their goods and services jumped in April to its highest level in nearly four years. The combined data strengthened financial market expectations that the Federal Reserve will probably not cut interest rates this year.
Heather Long, chief economist at Navy Federal Credit Union, underscored the breadth of the pass-through effects from higher transport costs. "More pain will come as higher transportation costs are passed along for food, appliances, toys and every other item that travels on a ship, car or plane," she said. "Sentiment won’t improve until the Strait of Hormuz is open and there is a permanent end to the conflict."
Implications
The confluence of shipping disruption, elevated fuel costs and rising inflation expectations has dampened household confidence and added pressure on prices across multiple sectors. Transportation and logistics costs are acting as a channel for inflation to reach consumer-priced goods, while energy and commodity price moves are amplifying concerns about near-term purchasing power.