The University of Michigan’s latest consumer sentiment survey has revealed a dismal outlook among Americans, with consumer sentiment plunging 11% to a preliminary reading of 50.8, the lowest since records began in 1952. This drop is the second-lowest reading on record and marks a significant decline from April’s reading, which was lower than any seen during the Great Recession.
The survey’s director, Joanne Hsu, attributes this decline to President Donald Trump’s volatile trade war, which has significantly weighed on Americans’ moods. The sentiment worsened leading up to Trump’s announcement of sweeping tariffs last week. This pessimism is not limited to a specific demographic; it is pervasive across age, income, education, geographic region, and even political affiliation.
The Federal Reserve and Wall Street are closely monitoring this trend as it translates into consumer spending, which accounts for approximately 70% of the US economy. The impact of tariffs on inflation is also being scrutinized, with concerns that Americans may lose faith in the return to normal prices.
China’s retaliatory tariffs on US imports have increased to 125%, further exacerbating tensions between the two nations. Trump paused his massive tariff hike on dozens of countries for 90 days but maintained a 10% baseline duty and separate tariffs on specific products.
The relationship between consumer sentiment and spending is complex. While soft data, such as surveys, has deteriorated due to tariffs, hard data, like retail sales, still looks decent. Employers continue to hire at a brisk pace, and shoppers have not significantly reduced their spending despite weaker-than-expected retail sales recently.
However, experts warn that the hard data could take a turn for the worse. New York Fed President John Williams expects economic growth to slow sharply this year, pushing up unemployment, and inflation to accelerate. Federal Reserve Chair Jerome Powell noted that consumers often continue to spend despite negative surveys, but the current uncertainty triggered by Trump’s tariffs poses a significant threat.
The survey also highlights concerns about wealthier Americans’ spending habits. If they lose confidence in the economy, it could keep the US economy growing. Larry Fink, CEO of BlackRock, likened this situation to the 2008 global financial crisis, where large structural shifts in policy and markets occurred.
The Federal Reserve is particularly worried about Americans’ perception of prices, as it can be self-fulfilling. The latest survey shows that expectations for inflation rates have surged to 6.7% from 5% in March, the highest level since 1981. If people lose faith in returning to normal prices, it would make it difficult for the Fed’s monetary policy to fight inflation.
The road back to price stability may be longer, and the labor market could become weaker if higher inflation expectations become entrenched. Dallas Fed President Lorie Logan warned that this situation may lead to “un-anchored” inflation expectations, making it more challenging for consumers to adjust their spending habits.
Source: https://edition.cnn.com/2025/04/11/economy/us-consumer-sentiment-april/index.html