US consumer sentiment plunged to its second-lowest level on record in September, driven by escalating gas prices and the economic fallout of the US-Israeli war with Iran. The University of Michigan’s consumer sentiment index registered 48.1, marking a 7% decline from August and a nearly 13% drop from a year ago. This figure places current sentiment lower than during wars, the 1970s oil crisis, 9/11, the Great Recession, and the Covid-19 pandemic, according to data from the 74-year-old survey.
Workers Bear the Burden
The four lowest-ever readings for the index have all occurred within the past six months, with the record set in May of the same year. This sustained decline reveals that Americans are deeply unhappy with the state of their personal finances and the broader economy. Joanne Hsu, director of the university’s Surveys of Consumers, noted a broad agreement across the political spectrum that the economic outlook has weakened since the beginning of the year. Republican sentiment is now 20% lower than January 2026, while Democrats are down 13% over the same period, indicating a widespread dissatisfaction that transcends partisan lines.
Households have contended with higher-than-normal inflation and the compounding effects of fast-rising prices for the past five and a half years. These cost-of-living concerns deepened this year as the US-Israeli war with Iran set off a monthslong conflict. This conflict negatively impacted the global supply of oil, directly escalating prices at the pump for working families.
The Cost of Capital's Wars
Gus Faucher, chief economist at The PNC Financial Services Group, identified higher gasoline and diesel prices as the biggest factor. People observe these costs daily when they fill their vehicles. Faucher also highlighted that nominal record diesel prices have the potential to lead to further price hikes down the road, extending the burden on consumers. He attributed the pickup in inflation over the past year to tariffs and the ongoing conflict in Iran. The end of the conflict does not appear imminent, leaving many feeling frustrated and concerned about future economic stability.
Consumers’ inflation expectations rose for both the coming year and for five years from now. Year-ahead expectations shot to 4.6% from 4% in August, reaching the highest reading since June. Before the start of the Middle East conflict, those year-ahead expectations stood at 3.4%. As of September, consumers are expecting to see 3.4% inflation in the next five years, a figure that moved up from three consecutive months at 3.3% and surpassed the 2024 range of 2.8%-3.2%.
The State's Hand in Crisis
The Federal Reserve closely tracks these long-run expectations. Earlier this month, the Fed hiked interest rates for the first time in three years. This action by the central bank, often framed as a response to inflation, primarily serves to protect accumulated capital by managing the money supply, frequently at the expense of broader economic activity and employment for the working class.