“Uncertainty” might be executives’ new favorite word as they scramble to respond to tariffs and potential regulatory changes and forecast the Fed’s next move. But it looks like everyday Americans are having qualms about the economy as well.
US consumer confidence dropped 7.0 points in February, the Conference Board reported, the largest one-month dip in three and a half years. The decline was consistent across all age groups and most income levels. Confidence has been dropping for three consecutive months.
Consumer pessimism is being driven, in part, by inflation fears. Consumers’ expectations that inflation would rise in the next 12 months rose from 5.2% to 6.0%, reaching a high last seen in May 2023.
The University of Michigan’s consumer sentiment index showed a similar turn towards pessimism, with consumer confidence dropping 9.8% over last month. According to that index, this month consumers’ 5-year inflation outlook reached its highest level since 1995.
Trump bump over? Uncertainty around tariffs and federal layoffs is also keeping people from opening their wallets. In write-in responses to its consumer confidence survey, the Conference Board saw a “sharp increase in the mentions of trade and tariffs, back to a level unseen since 2019,” Stephanie Guichard, senior economist, global indicators at the Conference Board said in a press release. “Most notably,” she continued, “comments on the current Administration and its policies dominated the responses.”
Business and consumer sentiment surged after Donald Trump won the 2024 election, buoyed by expectations that he would lower prices and usher in a more business-friendly climate in Washington. (CFOs were especially ebullient.) But the sweeping changes of his first month in office might have undercut those beliefs. “No Federal government has ever before threatened government workers with mass firings and it is starting to scare the daylights out of consumers,” economist Christopher Rupkey told Reuters.
Recession tremors? The Conference Board’s Expectations Index, a measure of how consumers’ short-term prospects for income, the job market, and business in general, dropped 9.3 points this month to reach 72.9. That’s below the threshold of 80, which can indicate a recession is on the horizon.
Economists aren’t anticipating a recession yet, per Reuters, but they do foresee “a long period of very slow economic growth and high inflation” ahead.
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