US Consumer Sentiment in September 2025: Key Drivers Behind the Decline

US consumer sentiment took a notable step back in September 2025, reflecting mounting pressures in the economic landscape. The University of Michigan’s Consumer Sentiment Index fell to 55.1, the lowest reading since May and down from August’s 58.2. This marks the second straight monthly decline and puts sentiment nearly 22% below where it stood a year prior.

What’s Fueling the Drop in Consumer Sentiment?

The decrease in sentiment was broad-based, impacting nearly every demographic group—regardless of age, income, or education. Notably, all five core components of the index slid downward, highlighting widespread unease among American households.

A primary concern remains persistent high prices. Forty-four percent of survey respondents spontaneously mentioned that inflation is eroding their personal finances, the highest share in over a year. Despite some easing in year-ahead inflation expectations, which dipped slightly to 4.7% from 4.8% last month, skepticism about future price stability remains high. Long-run inflation expectations edged upward again, settling at 3.7% in September, though they are below the 4.4% seen in April.

Sentiment broken down by group shows clear divides. Wealthier Americans with substantial stock holdings maintained steady sentiment levels in September, in sharp contrast to lower- and middle-income groups, whose optimism faded further. Political affiliation also played a role: sentiment among Democrats improved, even as it declined for both Independents and Republicans.

Labor Markets and Personal Financial Outlooks Weigh Heavily

Another important factor behind the decline is growing uncertainty about the job market and future business conditions. Both the measure of current economic conditions and the expectations index declined. The expectations index—a forward-looking measure of where consumers see the economy heading—dropped sharply to 51.7 from 55.9 last month, a decline of 7.5%. Views on current economic conditions slipped to 60.4 from August’s 61.7.

Amid these macro-level anxieties, Americans are also increasingly concerned about their own financial health. Assessments of personal finances weakened notably as more consumers reported feeling pressured by rising costs and the potential for a softer job market. The percentage of people who noted that high prices were damaging their household budget hit a yearly high.

Uneven Reactions Across the Economy

While overall sentiment is down, pockets of resilience do exist. Wealthier stockholders’ sentiment was largely unchanged, demonstrating how financial market participation can buffer some economic headwinds. In contrast, smaller households and those without investments reported the sharpest declines in confidence.

Meanwhile, political sentiments further complicated the picture: Democrats became marginally more optimistic in September, while Independents and Republicans became more pessimistic. This divergence highlights how economic perceptions are filtered through both financial and political lenses.

Inflation Expectations: Mixed Signals

Consumers continue to watch inflation closely. While short-term inflation expectations eased modestly, dropping to 4.7%, long-term forecasts crept up for a second consecutive month. Notwithstanding this rise, long-term inflation forecasts are still lower than the peaks seen earlier this year. This cautious optimism suggests consumers recognize some progress against inflation, but many remain wary of potential setbacks.

What Does This Mean for Households and Policymakers?

The sustained drop in consumer sentiment could have direct implications on spending behavior in the months ahead. Uncertainty over jobs and persistent frustration with high prices may cause many Americans to cut back on discretionary purchases or delay major buys, weighing on economic growth.

For policymakers, the September sentiment readings underscore the need to address not just inflation but also broader concerns about wage growth, job stability, and overall economic opportunity. Effective communication about economic policies and tangible actions to reduce inflation pressures may prove crucial in restoring consumer confidence.

Navigating a Challenging Economic Environment

Consumer sentiment is more than just a statistical measure—it’s a real-time barometer of household economic health and future spending intentions. The September 2025 sentiment data signals real pain for many Americans, especially in lower- and middle-income brackets, and highlights a growing divide based on wealth and political affiliation. As the country heads toward the last quarter of the year, both households and policymakers face a complex environment where stability and optimism remain in short supply.

Staying attuned to these shifts, making informed spending decisions, and advocating for clear economic policy responses will be essential as we navigate continued uncertainty.