Consumer sentiment fell sharply in April, marking the fourth consecutive month of declines, as an intensifying trade war fueled anxiety over American jobs and rising inflation.
The University of Michigan’s closely watched consumer sentiment index, released Friday, fell 11% to 50.8, the lowest since the depths of the pandemic.
“The further fall in the University of Michigan Consumer Sentiment Index in April along with the rise in both one- and five-year inflation expectations, suggests that the tariff-related fears which had soured sentiment over the past couple of months are here to stay,” said Harry Chambers, assistant economist, Capital Economics, in a research note.
The decline was “pervasive and unanimous across age, income, education, geographic region, and political affiliation,” said Joanne Hsu, director of the survey.
The share of respondents expecting unemployment to rise in the coming months increased for the fifth straight month and is now the highest since 2009, during the Great Recession.
And Americans now expect long-term inflation to reach 4.4%, up from 4.1% last month, a move that may be of particular concern for the U.S. Federal Reserve.
“Tariffs and the drop in equity prices are not sitting well with consumers,” said Ryan Sweet, chief U.S. economist at Oxford Economics, in a note.
According to Sweet, consumers’ perception of inflation has historically been driven by food and gasoline prices, as opposed to U.S. trade policies. “But prices at the pump have been declining,” Sweet said.
“Forecasting where inflation was headed since the pandemic has been a humbling experience for economists and financial markets, but consumers have done a fairly good job,” said Sweet. “Therefore, the rise in near-term inflation expectations should not be ignored and is being driven by tariffs.”
The Fed pays close attention to inflation expectations, because they can become self-fulfilling. If people expect prices to rise, they often take steps that can push up prices, such as accelerating purchases or seeking higher wages.
Americans’ inflation expectations over the next five years are now at the highest since 1991, according to Capital Economics, a forecasting firm.
Those inflation expectations have now jumped for several months. At a news conference last month, Fed Chair Jerome Powell said the University of Michigan’s inflation expectations measure was an “outlier.” Market-based measures of inflation expectations, based on inflation-adjusted Treasury securities, have remained low, near the Fed’s 2% target.
“The bond market doesn’t believe tariffs will cause persistently higher inflation, but consumers are less convinced,” said Sweet. “Keeping inflation expectations anchored is critical for the Fed and one reason we don’t anticipate the central bank cutting interest rates until December.”
Typically, falling sentiment suggests that Americans will cut back on spending, though in recent years consumers have at times kept spending despite the gloom. Yet the fact that worries about employment are rising could lead to more caution by consumers.
“This lack of labor market confidence lies in sharp contrast to the past several years, when robust spending was supported primarily by strong labor markets and incomes,” Hsu said.
“In short, the corrosive uncertainty around the economic policies put forward by the Trump administration continues to weigh down consumer sentiment,” High Frequency Economics chief economist Carl B. Weinberg, and research assistant Mary Chen said in a research note.
The analysts warn of consumer spending “increasingly restrained by caution under the Trump economic agenda.”
“Today’s figures raise more red flags about consumer spending in the weeks and months ahead,” the economists said. “In our models, they foreshadow economic contraction ahead and a recession will give the Fed something to think about.”
