US consumer confidence showed signs of stabilization in February, offering markets a cautiously optimistic signal about household perceptions of the economy, even as broader concerns about growth and inflation persist. According to the Prelim UoM Consumer Sentiment report, the headline index rose 1.6% month-over-month to 57.3, beating market expectations and marking a modest improvement from January’s levels.
Despite the monthly uptick, sentiment remains fragile on a longer-term basis. The index was still 11.4% lower than a year earlier, highlighting how elevated prices, borrowing costs, and economic uncertainty continue to weigh on consumers. The data paints a mixed picture: short-term confidence has improved slightly, but underlying pessimism remains entrenched.
Current Conditions Improve, Expectations Remain Weak
The improvement in overall sentiment was largely driven by a stronger assessment of present economic conditions. The Current Economic Conditions Index jumped 5.2% to 58.3, reflecting better perceptions of income, employment, and near-term financial stability. However, this component also remained 11.3% lower year-on-year, underscoring the lingering impact of inflation and slower growth momentum.
In contrast, the Index of Consumer Expectations slipped 0.7% month-over-month to 56.6, marking one of the weakest readings in recent years. On an annual basis, expectations plunged 11.6%, signaling that consumers remain cautious about the outlook for jobs, incomes, and broader economic conditions over the next year.
The University of Michigan noted a growing divergence across households, with sentiment improving primarily among consumers with significant exposure to equity markets, while confidence among those without stock holdings remained subdued. This split highlights how financial market performance continues to shape economic perceptions unevenly across income groups.
Inflation Expectations Ease, Offering Markets Some Relief
One of the most market-sensitive aspects of the report was the decline in year-ahead inflation expectations, which fell from 4.0% to 3.5%, the lowest reading since January 2025. This moderation suggests that consumers are beginning to anticipate some easing in price pressures, a development closely monitored by the Federal Reserve.
Lower inflation expectations can help anchor long-term inflation trends, potentially reducing pressure on policymakers to maintain restrictive monetary settings. However, officials are likely to remain cautious, given that sentiment levels remain historically weak and inflation progress has been uneven.
Market Reaction: Dollar Steady, Euro Holds Firm
Financial markets responded with measured moves following the release. The US dollar showed limited reaction, as the modest improvement in sentiment was offset by weaker expectations and the still-low absolute level of confidence. Traders interpreted the data as supportive of economic resilience, but not strong enough to materially alter expectations for Federal Reserve policy in the near term.
The euro held steady against the dollar, benefiting indirectly from softer US inflation expectations and a lack of strong upside momentum in the greenback. Currency markets remain focused on relative growth and policy trajectories between the Federal Reserve and the European Central Bank, with US consumer data playing a key role in shaping near-term FX sentiment.
Outlook: Stability, Not Strength
While February’s improvement in consumer sentiment offers a tentative positive signal, the broader message remains one of caution. Confidence levels remain deeply depressed compared to historical norms, and expectations for the year ahead stay weak. For markets, the data supports a narrative of slowing but resilient economic activity, reinforcing expectations that monetary policy will remain data-dependent rather than decisively shifting toward easing.
Traders will now look ahead to upcoming inflation and labor market data to determine whether this stabilization in sentiment can translate into sustained economic momentum—or whether confidence will once again falter under persistent cost and growth pressures.
