Consumer confidence just suffered a serious blow. That’s the lowest level since May 2020, according to the most recent data from the Conference Board. In April, consumer confidence sank 7.9 points to a reading of 86, reflecting widespread anxiety about inflation and job security. Inflation expectations for the next year jumped to 7%, their highest point since November 2022. At its core, this increase in expectations is an indicator of the increasing concern among Americans about their financial lives and futures.
A preliminary survey from the University of Michigan shows a shocking drop in consumer sentiment. It further reflects an increase in one-year-ahead inflation expectations. Consumers are sounding alarm bells on the economy like never before, with an increasing percentage expecting a recession within the next 12 months. This pessimism marks a significant shift in the mood of consumers. Unsurprisingly, few Americans were actually willing or able to continue spending like in previous recessions.
Inflation Expectations Surge
Inflation has weighed heavily on consumers, especially as it hit a four-decade high in June 2022. According to the latest Conference Board survey, consumers are more aware than ever about how inflation impacts their ability to buy what they need. The 7% inflation expectation for the year ahead is bad news for economists and policymakers, as well.
“Consumers explicitly mentioned concerns about tariffs increasing prices and having negative impacts on the economy,” – Conference Board
These tariffs, initiated under President Donald Trump’s administration, have a lot of consumers on edge. Under the current trade framework, too many are experiencing escalating prices and possible future shocks to economic stability. As of June 2022, consumer sentiment was at the same record low. Consumers did not stop spending at the same rate in the months after, showing just how complicated the relationship can be between consumer confidence and economic activity.
Concerns Over Job Security and Recession
In addition to worries about inflation, consumers are more and more concerned about losing their jobs. The proportion of Americans who believe that the U.S. economy will be in recession within the next year jumped up to a two-year high. This jump compounds the anxiety every family is feeling right now. Further complicating the picture, Richmond Fed President Thomas Barkin recently underscored meaningful concerns about the sustainability of consumer spending. Specifically, he touted the idea that inflation and employment problems are inextricably linked.
These fears about job stability only add to the burden of inflation on household budgets. Consumers are now faced with the dual pressure of managing everyday expenses while grappling with uncertainties regarding their employment prospects. All of these factors might be additional brakes on consumer spending. With consumer spending making up more than 70% of U.S. economic output, this drop is highly damaging to the nation’s economic growth.
Impact of Trade Policies
President Trump’s disastrous trade war continues to sink consumer confidence as evidenced by further contracting economic activity. Americans are right to be worried that these permanent tariffs will increase inflationary pressures and lead the country into a recession. Politically, some of the most alarming aspects of these trade policies have been met with stern warnings by notable economists. They expect a “tariff-induced slowdown” in overall economic growth while negotiations on fiscal policy continue.
“You’ll have a tariff-induced slowdown in the second half of 2025, but then fiscal policy will launch up the economy in 2026,” – Nicole Cervi, an economist at Wells Fargo
The lack of clarity about trade and other policy directions has created jitters on the part of consumers and Wall Street. Treasury Secretary Scott Bessent previously remarked on the administration’s economic agenda, stating, “we’ve got three legs to the president’s economic agenda: trade, tax and deregulation.” Whether these policies can ever be effective is still an open question as consumer sentiment continues to slip.