Washington
CNN
—
Americans are rarely this pessimistic about the economy.
Consumer sentiment plunged 11% this month to a preliminary reading of 50.8, the University of Michigan said in its latest survey released Friday, the second-lowest reading on records going back to 1952. April’s reading was lower than anything seen during the Great Recession.
President Donald Trump’s volatile trade war, which threatens higher inflation, has significantly weighed on Americans’ moods these past few months. That malaise worsened leading up to Trump’s announcement last week of sweeping tariffs, according to the survey.
“This decline was, like the last month’s, pervasive and unanimous across age, income, education, geographic region and political affiliation,” Joanne Hsu, the survey’s director, said in a release.
“Sentiment has now lost more than 30% since December 2024 amid growing worries about trade war developments that have oscillated over the course of the year,” she added.
The Federal Reserve and Wall Street are watching closely how souring sentiment translates into consumer spending, which accounts for about 70% of the US economy, and whether Americans lose faith that inflation will return to normal in the coming years.
Trump on Wednesday paused his massive tariff hike on dozens of countries for 90 days, but kept in place a 10% baseline duty for all imports into the US and separate tariffs on specific products and commodities. The so-called reciprocal tariffs, albeit short lived, were the sharpest increase in US duties ever on data going back 200 years, Fitch Ratings told CNN
China, however, wasn’t included in Trump’s tariff reprieve, continuing a contentious tit-for-tat between the world’s two largest economies that stretched into Friday, with Beijing jacking up its retaliatory tariffs on US imports to 125% from 84%.
The Michigan survey was fielded between March 25 and April 8, so it doesn’t capture respondents’ reaction to the recently announced tariff delay.
The relationship between sentiment and spending
In economics, surveys are referred to as “soft data” and measures capturing actual economic activity, such as retail sales, are known as “hard data.”
The soft data has clearly deteriorated because of Trump’s tariffs: The latest Michigan survey showed that “the share of consumers expecting unemployment to rise in the year ahead increased for the fifth consecutive month and is now more than double the November 2024 reading and the highest since 2009,” according to a release.
Yet, the hard data still looks decent. Employers continue to hire at a brisk pace and shoppers haven’t convincingly reined in their spending just yet, though retail sales have come in weaker than expected recently.
“Sometimes the surveys are very negative, but they keep spending,” Fed Chair Jerome Powell said last week at an event near Washington, DC. “People spent right through the pandemic and they spent right through this time of higher inflation.”
Spending by better-off Americans has played a key role in keeping the US economy humming along these past few years, but the recent turbulence on Wall Street, triggered by Trump’s tariffs, is putting that under threat.
“Wealthy consumers’ stock market gains kept the economy growing in 2024 despite high prices, but the wealthy won’t feel confident enough to keep spending if this keeps up,” Bill Adams, chief economist at Comerica Bank, wrote in a recent analyst note.
Larry Fink, chief executive of BlackRock, the world’s largest asset manager, said Friday that today’s dense fog of uncertainty, triggered by Trump’s tariffs, is reminiscent of the 2008 global financial crisis.
“We’ve seen periods like this before when there were large, structural shifts in policy and markets — like the financial crisis, Covid-19 and surging inflation in 2022. We always stayed connected with clients, and some of BlackRock’s biggest leaps in growth followed,” Fink said.
JPMorgan Chase CEO Jamie Dimon echoed that sentiment, noting Friday after the bank released its latest quarterly earnings: “The economy is facing considerable turbulence (including geopolitics), with the potential positives of tax reform and deregulation and the potential negatives of tariffs and ‘trade wars.’”
There’s one survey-based measure that matters a whole lot for the Fed: Americans’ perception of prices. It’s critical because they can be self-fulfilling — if people expect inflation to climb and remain elevated in the long run, they adjust their spending accordingly.
So far, that measure has been trending in the wrong direction: Expectations for inflation rates in the year ahead surged to 6.7% this month from 5% in March, the highest level since 1981, while expectations for the next five to 10 years climbed to 4.4% from 4.1%.
If people do lose faith that inflation will ever get back to normal in the coming years, that would make it extremely difficult for the Fed’s monetary policy to fight inflation.
“History teaches that when higher inflation expectations become entrenched, the road back to price stability is longer, the labor market is weaker and the economic scars are deeper,” Dallas Fed President Lorie Logan said Thursday at an event in Dallas.
Inflation expectations these days may be more susceptible than usual to becoming “un-anchored,” since consumers just experienced a period of high inflation, leaving many Americans particularly sensitive to elevated prices.
