Will Michigan consumer sentiment go above 65 in 2026?

Federal Reserve projects 2.0% core PCE, 3.1% federal funds rate for 2025. The Federal Reserve's Summary of Economic Projections (SEP) from March 2026 provides median forecasts for year-end 2025. These projections indicate that the core Personal Consumption Expenditures (PCE) inflation rate, which excludes food and energy, is anticipated to be 2.0% ^{[^]}. Furthermore, the median forecast from the same FOMC materials sets the federal funds rate at 3.1% by the close of 2025 ^{[^]}.

Wall Street Journal economists forecast higher 2025 inflation and interest rates. In contrast, the Wall Street Journal's Economic Forecasting Survey, published in April 2026, presents slightly different consensus forecasts from participating economists. For year-end 2025, the mean forecast for core PCE inflation in this survey is 2.3% ^{[^]}. Regarding the federal funds rate, the survey reports a mean forecast of 3.80% for the end of 2025 ^{[^]}.

Professional forecasters project stable job growth and rising unemployment for late 2025. According to the first quarter 2025 Survey of Professional Forecasters (SPF) conducted by the Federal Reserve Bank of Philadelphia, the consensus anticipates monthly average Non-Farm Payroll (NFP) gains of 100,000 jobs per month for the second half of 2025 ^{[^]}. Specifically, this includes projected gains of 100,000 in both the third and fourth quarters of 2025, indicating stable job growth ^{[^]}. Concurrently, the SPF consensus projects a slight increase in the U3 unemployment rate throughout the second half of 2025, with a median forecast of 4.1% for the third quarter and 4.2% for the fourth quarter ^{[^]}. This results in an average unemployment rate of approximately 4.15% over the entire second half of the year ^{[^]}.

These labor market projections are crucial for shaping future perceptions. The anticipated trends in Non-Farm Payroll gains and the U3 unemployment rate during the second half of 2025 will be key in setting the stage for labor market perceptions entering 2026 ^{[^]}.

Following a presidential election, consumer sentiment shifts dramatically and diversely across demographics. Supporters of the winning party typically experience a substantial rise in optimism regarding economic conditions and the future, while supporters of the losing party see a sharp decline in sentiment ^{[^]}. This creates a significant partisan gap, exemplified by the University of Michigan's Surveys of Consumers reports: after the 2016 election, Republican sentiment surged as Democratic sentiment plummeted, establishing a record partisan divide ^{[^]}. A reversed pattern occurred after the 2020 election, with Democratic sentiment improving and Republican sentiment declining ^{[^]}. Sentiment trends also differ across income quintiles; lower-income households are more acutely affected by immediate economic pressures like inflation, gas prices, and job security, leading to potentially more pronounced declines and slower recoveries. Higher-income households, conversely, are typically more influenced by broader financial market performance and wealth changes ^{[^]}.

Future sentiment recovery appears uneven across income and political groups in late 2024 and 2025. While overall consumer sentiment may show signs of recovery, projections indicate this recovery will likely be uneven across different demographic groups ^{[^]}. Specifically, the highest income quintile is often projected to maintain a higher absolute sentiment level and exhibit a more robust or faster pace of recovery compared to the lowest income quintile ^{[^]}. The persistent partisan divide observed in past post-election periods is also anticipated to continue, with supporters of the newly elected or re-elected administration maintaining higher optimism than the opposition ^{[^]}. These ongoing disparities suggest the breadth of sentiment recovery will be narrow or uneven rather than broad and uniformly distributed, implying varied levels of economic security and optimism across the population ^{[^]}.

The Michigan Consumer Sentiment Index comprises two key sub-indices. This index is composed of the Index of Current Economic Conditions (CEC) and the Index of Consumer Expectations (ICE) ^{[^]}, ^{[^]}, ^{[^]}. The CEC assesses consumers' evaluations of their current personal financial situations and buying conditions, while the ICE captures their outlook on the economy and personal finances over the short and long term ^{[^]}, ^{[^]}. Both sub-indices are crucial for understanding consumer attitudes and are widely utilized in economic analysis ^{[^]}, ^{[^]}.

The spread between these sub-indices offers insights into economic direction. Economists frequently analyze the spread between the Index of Consumer Expectations and the Index of Current Economic Conditions to gauge future economic trends ^{[^]}. A widening negative spread, indicating declining consumer expectations relative to present conditions, typically suggests increasing pessimism about future economic prospects. Historically, the Index of Consumer Expectations is often a more volatile and somewhat leading indicator compared to current conditions, which is observable from charts ^{[^]}. However, whether a widening negative spread reliably precedes a stall in the headline Consumer Sentiment Index's recovery 6-9 months later during post-recessionary periods has not been explicitly confirmed as a definitive finding in the provided sources ^{[^]}, ^{[^]}, ^{[^]}. While such divergence is generally seen as a cautionary signal, the consistency and statistical significance of this specific predictive relationship across multiple post-recessionary cycles require further detailed empirical analysis of historical time series data ^{[^]}, ^{[^]}, ^{[^]}.

The U.S. Energy Information Administration (EIA) projects lower energy prices for 2025, potentially easing consumer burdens. The EIA forecasts average prices for regular gasoline at $3.41 per gallon and Henry Hub natural gas at $3.07 per million British thermal units ($/MMBtu) in 2025 ^{[^]}. These projections indicate more favorable energy cost conditions compared to recent years, particularly during periods when Michigan consumer sentiment was sustained at low levels.

Michigan consumer sentiment was historically low during a period of high energy prices. The University of Michigan's Consumer Sentiment Index remained below 65 from December 2021 through October 2023, a timeframe characterized by elevated inflation and economic uncertainty ^{[^]}. During 2022, within this period of diminished sentiment, average regular gasoline prices were approximately $3.95 per gallon, and Henry Hub natural gas averaged $6.45/MMBtu ^{[^]}. The EIA's 2025 forecasts for gasoline ($3.41/gallon) and Henry Hub natural gas ($3.07/MMBtu) are considerably lower than these figures from the period of low consumer sentiment ^{[^]}.

Natural gas prices in 2025 will rise from a 2024 record low. The EIA anticipates that U.S. natural gas spot prices in 2025 will increase from a record low observed in 2024 ^{[^]}. Despite this increase, these prices are expected to remain below the elevated levels experienced during the recent period of sustained low consumer sentiment ^{[^]}.

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