As economic conditions weaken, consumer confidence has plunged. The University of Michigan Consumer Sentiment Index fell to 67.8 in February, down from 71.1 in January, reaching its lowest level since July 2024. Sentiment around current economic conditions dropped (-5.3 points), while future expectations declined (-2 points). Additionally, durable goods purchases fell 12%, as consumers grow increasingly wary of higher prices and economic uncertainty.
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Inflation concerns have surged alongside this pessimism. One-year inflation expectations jumped from 3.3% to 4.3%, one of the sharpest increases in the past 14 years. Long-term expectations rose to 3.3%—the highest since June 2008, reinforcing fears that inflation is becoming more entrenched.
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The Federal Reserve is taking notice. The FOMC’s Inflation Risk Diffusion Index—a strong predictor of one-quarter-ahead PCE inflation—jumped significantly in January, suggesting that policymakers expect inflation to remain stubbornly high. This increases the likelihood of prolonged higher interest rates, which could further strain the economy.

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Economic Fragility Intensifies

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The combination of slowing job growth, foreign labor dependency, downgraded GDP forecasts, deteriorating leading indicators, and collapsing consumer sentiment points to a U.S. economy on increasingly shaky ground. With inflation risks resurfacing and the Federal Reserve maintaining tight monetary policy, the risk of a 2025 recession is rising. Markets and policymakers face a precarious balancing act as economic momentum continues to erode.

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