The bottom line is that Americans are increasingly on edge economically. With retailers, recent consumer surveys indicate a significant decrease in consumer confidence. According to a new report from the Conference Board, consumer sentiment plummeted in April. It dropped by 7.9 points to a reading of 86. That would be the lowest level of confidence since May 2020. President Donald Trump’s disastrous ongoing trade war is further adding to that sense of growing unease. Most think it would increase inflation and even likely lead to a recession.
Recent data shows that the share of Americans anticipating a recession within the next year has reached a two-year high. The implications of Trump’s tariffs are weighing heavily on consumers’ minds, as reflected in their write-in responses to surveys. This, combined with increased concerns about inflation and layoffs, have driven Americans to be more negative than positive about their financial outlook.
Economic Landscape and Consumer Sentiment
Consumer sentiment took a real nosedive the last few months. With inflation continuing to hit Americans’ wallets, more and more Americans are worried about the effects of inflation on their personal finances. In April, expectations for inflation over the next year soared to 7%. That’s the highest point we’ve registered since November of 2022, per the Conference Board. The University of Michigan’s survey supports this trend, recording increases of the same magnitude in year-ahead inflation expectations among Americans.
In contrast to this pessimism, the consumer has proven remarkably resilient and consumer spending remains robust. In 2023, Americans continued to spend heavily on discretionary activities such as concerts and travel. That is a sign that while confidence is starting to wane, consumer behavior is holding up at least for the time being. Consumer spending drives nearly 70% of the U.S. economic output. This reality comes out most clearly in its significant role as the linchpin of our national economic engine.
“Consumers explicitly mentioned concerns about tariffs increasing prices and having negative impacts on the economy,” – Conference Board
That widening gulf between consumer confidence and consumer spending is a troubling sign for the continued strength of this economic expansion. Even when consumer sentiment reached an all-time low in June 2022, Americans continued to spend in the months that followed. It is unclear if this trend will continue under the cloud of rising economic anxieties.
Impact of Trade Policies
The impact of President Trump’s trade policies is often the focus when it comes to talking about overall consumer sentiment. Thousands of Americans from across the country have expressed alarm that these tariffs will result in higher prices and poor economic performance.
Richmond Fed President Thomas Barkin noted, “I think there’s lots of reasons to be worried about consumer spending.” Those risks—including the real possibility of a tariff-induced economic slowdown, as previously predicted by economists—loom large. Nicole Cervi from Wells Fargo stated, “You’ll have a tariff-induced slowdown in the second half of 2025, but then fiscal policy will launch up the economy in 2026.”
Treasury Secretary Scott Bessent noted that the administration has heard these concerns and is committed to providing clarity and relief. “We’ve got three legs to the president’s economic agenda: trade, tax and deregulation, and we hope that we can have this tax portion done by Fourth of July,” he stated.
Consumer Behavior Amid Uncertainty
Consumer confidence has been badly shaken in recent months. Americans are still spending, and their actions have not indicated a clear and strong divergence from this pessimism so far. Despite fears that inflation was putting a damper on their wallets, many looked forward to making their everyday purchases. A customer was seen purchasing items at a Dollar Tree location in Alhambra, California. This doesn’t mean consumers have abandoned the market – quite the opposite.
The question remains: how long can this trend continue? If inflation expectations continue to rise and the danger of stagflation persists, it will not take long for consumers to change their behavior, perhaps permanently. Analysts are closely monitoring these developments to ascertain whether Americans will maintain their current spending levels or if rising fears will ultimately lead to reduced consumption.