Currently, there is pessimism among residents of the United States in the context of assessing the prospects for the further dynamic of the country’s economic system.
Consumer sentiment in the US showed a decrease of 11% in the current month. The corresponding preliminary reading was recorded at the 50.8 mark. This information was obtained as part of the latest survey conducted by the University of Michigan. The results of the relevant survey were published on Friday, April 11. It is worth noting that the consumer sentiment indicator recorded in the current month turned out to be the lowest in the entire history of observations since 1952. It is also noteworthy that the present reading is below the level that was observed during the Great Recession. This means a total drop in the optimism of the residents of the United States about their own economic prospects. Pessimism has intensified and has actually become the basic platform for perceiving scenarios that are most likely to be implemented in the foreseeable future, against the background of significant increases in US tariffs, retaliatory measures from some other countries, primarily China, and the trade war that begins under the impact of these decisions and actions, clouding the prospects for economic growth at both regional level and on a global scale.
The mentioned trade war, which, as noted by the media, is characterized by excessive volatility at the current stage of implementation, contains a realistic threat of raised inflation in the United States economic system. The relevant concerns have been circulating for several months. This factor had a kind of downward impact on consumer sentiment in the United States. A significant acceleration in the growth of pessimism in the relevant context occurred after US President Donald Trump announced sweeping tariffs last week. This is evidenced by the results of the above-mentioned survey.
Joanne Hsu, the survey’s director, said that the decline, as in the previous month, was pervasive and unanimous across age, income, education, geographic region, and political affiliation. She also noted that consumer sentiment, recorded in April, showed a drop of more than 30% compared with the indicator observed in December. Moreover, Joanne Hsu underlined an increase in concern about the developments of the trade war over the course of the year.
Currently, the Federal Reserve and Wall Street are closely monitoring the dynamic of the decline in the mentioned indicator. In this case, attention is focused on the impact that the specified process has on consumer spending, which accounts for about 70% of the economic system of the United States. Wall Street and the financial regulator are also seeking an answer to the question of whether US residents will lose faith that inflation will return to normal in the coming years. The probability that the corresponding negative scenario will be realized is high against the background of numerous forecasts about the acceleration of price growth amid the trade war, which has recently demonstrated what corresponds to such a formulation as a consistent escalation.
It is worth mentioning that this week Donald Trump announced a 90-day pause in massive tariff increases for dozens of countries. During the mentioned period, 10% levies and separate duties on specific products and commodities will take effect. It is worth noting that these tariffs, which Donald Trump called reciprocal, are the sharpest increase in the corresponding figures from the United States over the past 200 years. The relevant information was published by the media, referring to data from Fitch Ratings. It is worth noting that the pause does not apply to China. In this context, it is also noteworthy that one of the main, or perhaps the most important point of tension in the trade war is the confrontation between Washington and Beijing. China has already announced countermeasures against the United States. The mutual actions of Beijing and Washington have become one of the main factors in the formation of such a situation, in which statements about the escalation of the trade war, which was initially considered by some experts as a potentially more moderate process of economic confrontation, are appropriate.
The Michigan survey was conducted between March 25 and April 8. This means that the relevant data does not reflect the reaction of US consumers to the 90-day pause in tariff increases announced by Donald Trump.
It is worth noting that a kind of information perception practice has developed among economists, in which the results of surveys are characterized as soft data. At the same time, such a concept as hard data corresponds to retail sales statistics, which experts describe as a reflection of actual economic activity.
The latest Michigan survey also shows that in the United States, for the fifth month in a row, the proportion of consumers who expect an increase in the unemployment rate in the year has been increasing. Moreover, currently, the corresponding indicator is more than twice the figure recorded in November and is the highest since 2009.
At the same time, hard data still does not indicate a catastrophe that has already happened or is rapidly and inevitably approaching. Employers continue to actively hire employees. Shoppers have not significantly reduced their spending so far. However, retail sales have recently turned out to be weaker than preliminary expectations.
Fed Chair Jerome Powell said last week at an event near Washington, DC that sometimes surveys are very negative, but at the same time, consumers keep spending. In this context, he separately noted that people spent during the coronavirus pandemic and during periods of higher inflation.
Spending by better-off Americans in recent years has been the main factor in maintaining the state of affairs in the space of the US economic system within the framework of what can be roughly described as acceptability. At the same time, the turbulence on Wall Street associated with the current configuration of Washington’s tariff policy is a significant threat in terms of the impact on the strength of the mentioned factor.
Bill Adams, chief economist at Comerica Bank, wrote in an analyst note that wealthy consumers’ stock market gains keep the economy growing in 2024 despite high prices, but the wealthy won’t feel confident enough to keep spending if this keeps up.
Larry Fink, chief executive officer of BlackRock, the world’s largest asset manager, said that today’s dense fog of uncertainty, triggered by Donald Trump’s tariff policy, is reminiscent of the global financial crisis of 2008. It was also noted that similar periods have already been observed when large structural shifts in policy and markets took place. In the relevant context, the 2008 crisis, the coronavirus pandemic, and the sharp rise in inflation in 2022 were mentioned. Larry Fink also stated that BlackRock always stayed connected with clients, and some of asset managers’ biggest leaps in growth followed.
JPMorgan Chase chief executive officer Jamie Dimon noted that the US 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.
For the Fed, in the context of assessing the economic situation, it is also very important how Americans perceive prices. It is worth noting that such a perception can be self-fulfilling. If people expect inflation to rise and remain elevated in the long run, they will adjust their spending accordingly.
The mentioned measure has been trending in the wrong direction. In April, expectations for inflation rates in the year ahead surged to 6.7%. In March, the corresponding figure was recorded at the 5% mark. It is also worth noting that the April reading was the highest since 1981. Expectations for the next five to 10 years climbed to 4.4% from 4.1%.
If Americans nevertheless lose faith that inflation will be able to return to normal levels in the coming years, it will be difficult for the central bank of the United States to adjust monetary policy in such a way that the configuration of the appropriate strategy is maximally focused on countering price increases. This is the case when sentiment about reality partially shapes reality itself.
Dallas Fed President Lorie Logan said at an event in Dallas that history teaches that when inflation expectations become entrenched, the road back to price stability is longer, the labor market is weaker, and the economic scars are deeper.
Currently, the mentioned expectations as an indicator may begin to show an extremely low level of sustainability. This assumption is because there is still considerable uncertainty at the global level about what exactly the final configuration of the world’s economic reality will be. The trade war is already a fact, but there are certain issues. For example, the 90-day pause regarding tariff increases by the United States hints at Donald Trump’s willingness to ease his trade measures, regardless of which version of the explanation for this decision is true. Some world capitals have declared their readiness to negotiate with Washington on the normalization of economic cooperation with the US. United States Secretary of the Treasury Scott Bessent said that more than 50 countries have demonstrated a corresponding desire. Also, some experts still assess as a realistic prospect of negotiations between China and the US, despite the incessant increase in tension, complicating the likelihood of a favorable scenario.
