Consumer expectations have fallen to the lowest in over 12 years, with the measure far below the threshold researchers say often signals a recession ahead, according to The Conference Board's monthly index. For the culprit of this sharp decline, we need not look further than President Donald Trump's April 2nd unveiling of sweeping 'reciprocal' tariffs, provoking widespread panic despite his insistence that 'we are being very kind.' Although most of the higher rates have been suspended for 90 days, the recently imposed 'minimum baseline tariffs' of 10% on all global imports still stand.
With the University of Michigan's survey showing the steepest three-month percentage decline in consumer expectations since the 1990 recession, there is every right to be concerned. Consumers are overwhelmingly negative about tariffs. According to data from the Ipsos Synthesio AI-powered social intelligence platform, 79% of the conversations around tariffs across languages, continents, and social platforms have been negative. From markets to shopping carts, the unease is hard to miss.
The Pre-emptive Spending Surge
Somewhat counterintuitively, as Deloitte Insights also predicts, future anticipation of inflation may lead consumers to spend now in 2025 and pull back in 2026. A rise in big-ticket purchases — especially with products like smartphones and cars — began in anticipation of tariffs as early as March according to the U.S. News report. What is evident is that in anticipation of sharply higher prices, consumers are 'clearing the store shelves and picking up bargains while they can,' according to Christopher S. Rupkey, chief economist at FWDBonds LLC.
Larger effects will come in the long run. Alexander Mackay of Harvard Business School says, 'evidence indicates consumers may take three years or longer to adjust to price changes.' Their spending changes may mark the end of the 'resilient consumer.' Consumers have to make larger and larger cuts to their spending, and consumer choice is steadily falling.
The Bond Market Signal
The bond market offers valuable insight, and with recent headlines like CNBC's 'Volatility is here to stay in the bond market for the foreseeable future,' it is not looking hopeful. There is hardly an indicator of uncertainty stronger than this. Trump's assurance that 'ultimately, more production at home will mean stronger competition and lower prices for consumers' is largely unfounded, and even if true, would only be realized many years in the future.
What Trump does not seem to have forgotten (yet still seems to blunder) is that managing uncertainty is key. A large part of the impact of the tariffs will be how they are perceived and how expectations are shaped. 85% of U.S. shoppers are concerned about the impact of tariffs on their finances or shopping. Yet what spells even worse news is that data says consumers do not understand tariffs. Still, if the public perceives tariffs as catastrophic, their impact will be catastrophic as well.
Undeniably, government policy is volatile and so GDP growth will slow. Managing uncertainty is key if consumer confidence is to be controlled. Unfortunately, government policy is looking to be just as volatile as the bond market.