The Briefing:
- The University of Michigan's final September reading was 48.1, down from 51.7 in August and 55.1 a year earlier, making it the second-weakest final result in the survey's 74-year history.
- Inflation worries are the driver: households expect prices to climb 4.6% over the next year, up from 4.0% in August, while gasoline averages $4.49 a gallon, roughly 50% higher than when the Iran war began.
- The monthly drop was smaller than the survey's threshold for a meaningful change, so the story is how low sentiment stays, not a fresh collapse. The next inflation report arrives Oct. 14.
Americans' mood about the economy stayed close to its worst on record in September, with the University of Michigan's survey published Sept. 25 putting its sentiment index at 48.1. Only May's 44.8 has been lower among final readings. Households are juggling costlier fuel, renewed trade friction and higher borrowing costs at the same time, just as the Federal Reserve considers another rate increase.
A Modest Monthly Drop, but a Very Low Level
The index slipped 3.6 points from August. By the survey's own methodology, a monthly change has to reach 4.8 points before it counts as statistically significant at the 95% confidence level, so September's move falls short of that bar. The better reading is that an already gloomy mood held, not that confidence suddenly gave way.
Zoom out and the picture looks harsher. Sentiment is 15% below its January level and 12.7% under September 2025. The war matters here: ABC News notes that May's record low arrived only months after the Iran war began, and readings have stayed depressed since.
Expectations did most of the damage. The measure of current conditions barely budged, easing to 50.9 from 51.9, while the expectations index dropped to 46.3 from 51.5, a fall of about 10%.
Gas Prices, Tariffs and the Cost of Living
Roughly 55% of respondents said elevated prices were hurting their finances, compared with 53% in August and 44% a year earlier, the university reported. Unprompted mentions of gasoline rebounded to 31% after two months of decline, and survey director Joanne Hsu said people see no end in sight to rising pump prices, whether they look months or years ahead.
The pump price backs that up. AAA data cited by ABC News puts the national average at $4.49 a gallon, about 50% more than when fighting with Iran started in late February.
Government figures point the same way. The Bureau of Labor Statistics found energy costs 16.3% higher in August than a year earlier, and gasoline supplied more than a third of August's overall monthly price rise. Core prices, which strip out food and energy, climbed a slower 2.4% over the year, so fuel is where the pain is concentrated. Overall inflation held at 3.4%, the same as July and well above the Fed's 2% target.
Trade policy is adding to the strain. Tariffs came up unprompted for 35% of respondents in September, up from 24% in July, the survey found.
Higher Borrowing Costs Join the Squeeze
Interest rates now top the list of complaints about buying a home, displacing high prices, according to the university. Higher borrowing costs also soured views on vehicle purchases.
The Fed lifted its benchmark rate earlier this month, and Chair Kevin Warsh said afterward that "inflation is too high and has been for too long," ABC News reported. The same report said a key long-term Treasury yield hit its highest point in almost 20 years on Sept. 23, and that borrowing costs on credit cards and mortgages have climbed. Investors put the odds of another quarter-point hike in October at roughly two in three, using CME FedWatch Tool data cited by ABC.
Those costs land on credit cards, auto loans and mortgages, the same budget lines already under pressure from fuel prices.
Pessimism Crosses Party Lines
Republican sentiment is 20% below its January level and beneath its historical average, while Democrats are down 13% over the same span, according to the university. Hsu said interviews turned up a shared sense, among people of varied backgrounds and political leanings, that conditions worsened this year. When both camps lose confidence at once, price worries that cut across party lines look like a bigger factor than politics.
A Quirk in Spending Plans
Not every gauge fell. Views of buying conditions for big-ticket durable goods improved slightly, though for a defensive reason: some shoppers think buying now will beat future price hikes, the survey report explains. That can support sales for a while even as confidence stays weak, so retailers may be seeing purchases pulled forward rather than a genuine rebound in demand.
What to Watch Next
Two releases will show whether sentiment is stabilizing:
- Oct. 9: The university publishes its preliminary October data at 10 a.m. ET.
- Oct. 14: The Labor Department releases September inflation figures.
The job market has yet to crack, which keeps the picture mixed. Payrolls grew by 162,000 in August, ABC News reported, and the economy expanded through June. But if fuel costs stay elevated and the Fed keeps tightening, shoppers' pessimism could outlast the strength in hiring.
