Washington
CNN
—
Americans have gained some hope that the worst of President Donald Trump’s volatile trade war might be in the rearview mirror.
Consumer sentiment surged 16% this month to a preliminary reading of 60.5, the University of Michigan said in its latest survey released Friday. That was the first increase in sentiment since December, rising from the near-record lows of the spring when American consumers and businesses grew pessimistic in the thick of Trump’s tariff blitz.
This month’s uptick in sentiment was largely attributed to trade tensions easing from a fever pitch in April.
“Consumers appear to have settled somewhat from the shock of the extremely high tariffs announced in April and the policy volatility seen in the weeks that followed,” said Joanne Hsu, the survey’s director, in a release. “However, consumers still perceive wide-ranging downside risks to the economy.”
Still, sentiment is about 20% below December, and Americans could become jittery again if trade tensions flare up.
So far, the Trump administration has made little progress in its trade negotiations, reaching some agreements with the United Kingdom and China. Trump still has more than a hundred trade deals to broker in less than a month, before his massive “reciprocal” tariffs go back into effect on July 8.
Trump’s “Liberation Day” tariffs were the sharpest escalation in US import taxes on data going back 200 years, economists have told CNN. The tariffs went into effect briefly on April 9, before Trump announced they’d be delayed until early July.
Most of Trump’s trade policy is also in question by the courts, after a federal judged ruled that the president’s use of emergency powers to enact his hefty tariffs is unlawful. A federal appeals court earlier this week ruled that most of Trump’s tariffs can take effect while legal challenges play out, while fast tracking a resolution in the coming months.
The toll of Trump’s trade war on Americans’ attitudes toward the economy raised questions on what it means for consumer spending, the lifeblood of the US economy. Consumer sentiment has weakened notably, but that hasn’t been a good predictor of future spending in recent years, so investors and economic policymakers have been watching spending data closely to see if that remains the case this time around.
In April, consumer spending rose just 0.2% from the prior month, according to Commerce Department data, a sharp retreat from March when spending advanced 0.7% as Americans front-loaded purchases, especially of cars.
It’s too soon to conclude that Americans are pulling back their spending in the face of persistent uncertainty and expectations of higher inflation because of Trump’s tariffs. But that could come about if the US labor market, which is holding steady so far, suddenly deteriorates.
Economists point to the labor market as the main driving force behind spending. If Americans remain employed and their wages are beating inflation, then they will likely continue to spend.
