The University of Michigan’s preliminary Consumer Sentiment Index for March dropped to 55.5, down from 56.6 in February, marking the lowest reading of 2026. The decline, driven primarily by surging gasoline prices tied to the U.S.-Iran conflict, erased early gains recorded before military action began on February 28.
Survey director Joanne Hsu noted that interviews completed before the conflict showed improvement from the prior month. “But lower readings seen during the nine days thereafter completely erased those initial gains,” she said. The survey was conducted between February 17 and March 9.
Gas Prices Hit Consumers Across Every Income Bracket
The national average price for a gallon of regular gasoline climbed to $3.58 as of this week, up from $2.98 before the conflict started. That 20% jump has landed hardest on lower-income households but is now reaching across all demographics. A wide range of respondents across income groups, age brackets, and political affiliations reported weaker expectations for their personal finances, which fell 7.5% nationally.
“Gasoline prices have exerted the most immediate impact felt by consumers, though the magnitude of passthrough to other prices remains highly uncertain,” Hsu said. Before the conflict, the U.S. Energy Information Administration had projected gas prices to hover below $3.00 per gallon for 2026. That forecast is now obsolete.
Expectations Fall While Current Conditions Hold
The data revealed a split between how Americans feel about the present economy and where they expect it to go. The Current Economic Conditions Index actually rose slightly to 57.8, up from 56.6 in February. But the Consumer Expectations Index, which measures forward-looking outlook, dropped to 54.1 from 56.6, a decline of 2.5 points.
Year-ahead inflation expectations stalled at 3.4%, halting six consecutive months of declines. Long-term inflation expectations edged down slightly to 3.2% from 3.3%, but both figures remain elevated compared to pre-pandemic norms and have exceeded their 2024 ranges.
What This Means for Business Owners
For entrepreneurs and small business owners, falling consumer confidence signals a potential pullback in discretionary spending. With crude oil above $100 per barrel for the first time since 2022, the ripple effects extend well beyond the gas pump. Shipping costs, raw material prices, and logistics expenses are all climbing. JPMorgan economists estimate that the 42% increase in U.S. oil prices from their prewar levels could push overall inflation from 2.4% in January to 3% or higher in the months ahead.
The National Federation of Independent Business reported that its Small Business Optimism Index had already slipped for a second straight month before the conflict intensified. Health insurance premiums for small businesses rose 11% for 2026, nearly double the increase for larger companies. On the positive side, small businesses added roughly 106,000 net new jobs in February, and reports of labor quality problems dropped to their lowest level since April 2020.
The data arrives as the broader economy faces mounting uncertainty. The S&P 500 posted its third consecutive week of losses, falling to a new yearly low. The consumer discretionary sector has dropped 5.3% as rising energy costs and geopolitical anxiety weigh on spending expectations. For founders planning around consumer demand, the next quarter looks more cautious than it did a month ago.
