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The Trump bump in consumer sentiment is now a Trump slump.
Americans continue to grow worried over President Donald Trump’s escalating and haphazard trade war, according to the University of Michigan’s latest consumer survey released Friday. Consumer sentiment fell 11% this month to a reading of 57.9, a preliminary reading showed, down from last month’s reading of 64.7 and reaching its lowest level since November 2022. That’s a sharp retreat from December, after the US presidential election, when sentiment rose to its highest level in months.
The Trump administration’s rollout of its long-promised tariffs has been both erratic and contentious: Earlier this month, Trump imposed 25% tariffs on Mexico and Canada, only to delay those duties again after pleas from business leaders; then after US tariffs on steel and aluminum imports went into effect Wednesday, the European Union and Canada responded swiftly with their own tariffs.
That’s caused uncertainty to intensify in recent weeks, rattling Wall Street and making it difficult for companies to plan ahead, according to recent business surveys. It’s also sowed inflation fears. Americans’ expectations for inflation in the year ahead climbed to 4.9% this month from 4.3%, the highest level since November 2022 “and marking three consecutive months of unusually large increases of 0.5 percentage points or more,” according to a release.
“Many consumers cited the high level of uncertainty around policy and other economic factors; frequent gyrations in economic policies make it very difficult for consumers to plan for the future, regardless of one’s policy preferences,” Joanne Hsu, the survey’s director, said in a release.
“Consumers from all three political affiliations are in agreement that the outlook has weakened since February,” she said.
Uncertainty at an inflection point?
The tariff-induced uncertainty comes as the US economy shows some signs of weakness — and the jury is out as to whether the situation will take a turn for the worse.
In January, consumer spending declined for the first time in nearly two years as home construction plummeted. Executives at major companies such as Target, Walmart and Delta Air Lines have recently warned of consumers feeling stretched and possibly pulling back this year. A closely watched real-time forecast of economic growth from the Federal Reserve Bank of Atlanta shows the economy contracting a sharp 2.4% in the current quarter.
And of course, various consumer surveys have showed that Americans are feeling uneasy.
Trump did not rule out the possibility of a recession this year, when asked in an interview that aired Sunday. That triggered a massive selloff on Wall Street.
Still, the economy could keep its head above water simply because America’s labor market is holding steady, with unemployment still at a historically low level.
“The consumer has been the workhorse of this economic cycle that will remain the case even as we move through this slower consumption patch,” Jeff Schulze, head of economic and market strategy at ClearBridge Investments, told CNN. “And the biggest driver of consumption in the US tends to be the labor market.”
An economic puzzle for the Fed
In addition to signs of a slowing economy, short-term inflation expectations have trended up in recent months as Trump’s tariffs threaten higher inflation if a global trade war spirals out of control — a toxic combination resembling “stagflation.”
That’s a scenario in which growth flattens or turns negative as inflation picks up. Federal Reserve officials have been making sense of the economy’s various signals and are set to meet for their latest policy meeting next week.
“You essentially have opposing forces in the economy,” said Tom Bruce, macro investment strategist at Tanglewood Total Wealth Management. ” With tariffs, you have the threat of higher prices; and with sentiment declining, you start getting concerns about growth because businesses won’t be investing the way they otherwise would have, which can hamper economic growth.”
In recent speeches, Fed policymakers have signaled that they’re inclined to hold interest rates steady next week and in the months ahead as they await for some clarity on how the economy responds to Trump’s barrage of policy changes.
Fed Chair Jerome Powell said last week that how the central bank responds depends on “the net effect of these policy changes,” which, in addition to tariffs, also encompasses an aggressive crackdown on immigration and mass layoffs of federal workers.
“It’s not simply what’s happening with tariffs, it’s what’s happening with growth and all the other things as a result of these broad changes in economic policy, not just tariffs,” Powell said.
