U.S. Residents Express Dissatisfaction Toward the Economy. Inflation and Tariffs are Identified as Key Factors
Economic unease is cropping up in various sentiment gauges as the Trump administration explores revamping America's international trade relations and inflation indicators hint at becoming stubborn.
The recent figure from The Conference Board's Consumer Confidence Index for February, released on Tuesday morning, reveals a decline to 98.3. This marks the third consecutive month of descent and the most substantial monthly decrease since August 2021, simultaneously observing an upsurge in anticipated inflation for the upcoming year. This development aligns with trends spotted in the University of Michigan’s consumer survey for February.
Homebuilders are voicing concerns, too, as per the National Association of Home Builders' reports. Even smaller businesses, despite possessing a level of optimism stemming from deregulation and tax reductions, are uncertain about the future economy. The National Federation of Independent Business' Uncertainty Index soared in January, reaching its third-highest record value.
The American economy's gloomy state, largely due to President Donald Trump's aggressive stance on tariffs, represents a drastic turnaround from the brief wave of optimism observed after his election in November.
According to Stephanie Guichard, senior economist at The Conference Board's Global Indicators, consumers grew pessimistic regarding future business conditions and income prospects.
The Fed's Concern over Inflation Apprehensions
Central bank officials place great emphasis on ensuring Americans believe that inflation will eventually return to normal levels in the long term. Fears about inflation can become self-fulfilling; if people expect prices to escalate, they modify their spending habits accordingly.
So far, Fed officials have not issued alarm bells regarding inflation expectations. However, some emphasize the importance of maintaining these expectations in check.
If Trump's policies encourage inflation, as St. Louis Fed President Alberto Musalem suggested at a recent New York event, "ignoring or looking past an increase in the price level could be suitable if it's only temporary and limited." Nevertheless, "a different monetary policy response might be necessary if higher inflation becomes sustained or if long-term inflation expectations climb."
Chicago Fed President Austan Goolsbee said in a News Nation interview that the March run of inflation expectations in the University of Michigan's survey "wasn't ideal." However, it is merely a single month's data. Two or three months are required to consider this data as part of an observable trend.
Spending Plans in an Uncertain Economy
Sentiment surveys do not necessarily predict future spending behavior. For instance, during period when consumer sentiment reached an all-time low in June 2022, as inflation reached a four-decade high, consumers continued spending.
The current economic landscape, however, is marked by uncertainty that may be impacting individuals' spending intentions, according to a new Wells Fargo survey released on Tuesday. Seven out of ten adults (3,657) and teens (203) across the nation stated they intend to reduce their spending, citing economic unpredictability as a major factor.
"Consumer behaviors are evolving," said Michael Liersch, Head of Advice and Planning at Wells Fargo, in the survey's release. "The value of money appears less reliable, which appears more prominent for younger Americans."
The survey revealed that 82% of Gen Z adults and 79% of Millennials planned to cut their spending in the coming months. Overpriced meals and food delivery services, followed by a tank of gas and the cost of entertainment events, have left respondents the most shocked.
The tariffs implemented by President Donald Trump's administration have led to a pessimistic outlook among homebuilders, as reported by the National Association of Home Builders. This negative sentiment is not only present among bigger businesses but also extends to smaller enterprises, as indicated by the National Federation of Independent Business' Uncertainty Index. On Tuesday, Stephanie Guichard, a senior economist at The Conference Board's Global Indicators, expressed concerns about consumers growing pessimistic regarding future business conditions and income prospects.
