Consumer sentiment in the United States has taken a sharp dive, with confidence in the economy plummeting just three months into President Donald Trump’s second term. The University of Michigan’s consumer expectations index has seen a 32 percent decline since January, marking the steepest three-month drop since the 1990 recession.
This significant decline in consumer sentiment is a red flag for a potential economic recession, especially as the administration navigates numerous trade negotiations amidst escalating tariffs. Surveys conducted by Gallup and Reuters/Ipsos indicate a negative perception of the economy, with concerns about stalled growth and rising prices due to the ongoing trade war.
According to Joanne Hsu, head of the university’s survey team, consumers are apprehensive about various economic aspects, primarily driven by trade policy uncertainties and the looming threat of inflation. The survey also reflects a pessimistic outlook on income growth in the coming year.
Concerns and Projections
The decline in consumer expectations poses a risk of reduced spending in the near future. This decline cuts across age, education, income levels, and political affiliations, highlighting widespread economic anxiety. Consumers are bracing for a 6.5 percent rise in prices over the next year, the most significant projected increase since 1981, amidst a 2 percent inflation target set by the Federal Reserve.
While top economic adviser Stephen Miran believes that upcoming trade agreements and tax cuts will alleviate economic concerns, market volatility persists. The current economic unease echoes the challenges faced by former President Joe Biden during his tenure, emphasizing the impact of consumer sentiment on political and economic landscapes.
Trade Policy Implications
Experts now estimate a 45 percent chance of the U.S. entering a recession within the next year, a scenario that seemed improbable at the beginning of Trump’s term. The administration’s tariff policies, characterized by abrupt changes and escalations, have disrupted business plans, leading to a potential slowdown in growth.
Despite negative sentiment, tangible economic indicators like a low unemployment rate of 4.2 percent and unexpected inflation trends in March offer temporary respite. However, economists caution that continued tariff uncertainties could steer the economy towards recessionary territory.
Bill Adams, chief economist at Comerica Bank, warns of the deteriorating economic trajectory, emphasizing the increasing risk of a recession as uncertainty persists. The path forward hinges on the administration’s willingness to reevaluate tariff policies promptly to avert a potential economic downturn.
