That Marks the Third Consecutive Decline

*       Consumer sentiment dropped to 57.9 in the preliminary March reading, the lowest since November 2022.
 
*       The decline was broad-based with both the expectations and present conditions indexes falling.

*       Republicans have been much more confident than Democrats since December.
 
*       1-year and 5-year ahead inflation expectations rose again in March.
 
*       PNC still expects the Federal Open Market Committee (FOMC) to cut the fed funds rate by a total of 50 basis points this year.

Consumers became much less confident this month amid inflation fears and equity market declines. Consumer sentiment plunged to 57.9 in March according to the preliminary estimate from the University of Michigan. This is the third consecutive decline. Moreover, this was below the consensus forecast of 63.2 and the lowest since November 2022. The decline was broad-based with the expectations component sliding 9.8 points and the present conditions components falling a more modest 2.2 points.

There was a distinct difference among political parties with a consumer sentiment reading of 83.9 in March for Republicans and just 41.4 for Democrats. Republicans were much more upbeat about the future with the index of consumer expectations registering a reading of 95.7 compared to just 28.2 for Democrats. Interestingly, there was only a 3.4-point difference in the present economic conditions index with Republicans slightly more upbeat.

Inflation expectations rose again in March. 12-month-ahead inflation expectations climbed to 4.9% from 4.3% last month, while five-year ahead inflation expectations increased to 3.9% from 3.5% in February. The results suggest consumers are increasingly worried tariffs will result in significantly higher prices.

Consumer sentiment remains at a very low level that is typically seen in recessions (consumer sentiment averaged 63.6 during the Global Financial Crisis of 2008/2009) and is not consistent with the sturdy pace of economic growth and still-solid labor market. Nonetheless, consumer sentiment is unlikely to register strong gains in the near term amid a great deal of policy uncertainty. That said, sentiment is unlikely to fall much further absent continued equity market declines or a sharp upturn in gasoline prices. PNC still expects the FOMC to cut the fed funds rate by 25-basis points in May and another 25-basis points in July, lowering the fed funds rate to a range of 3.75%-4.00%.

PNC Bank, National Association, is a member of The PNC Financial Services Group, Inc. (NYSE: PNC). PNC is one of the largest diversified financial services institutions in the United States, organized around its customers and communities for strong relationships and local delivery of retail and business banking including a full range of lending products; specialized services for corporations and government entities, including corporate banking, real estate finance and asset-based lending; wealth management and asset management.