Tariff fears sink consumer economic mood in February
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Consumer sentiment fell across all political parties in early February, while expectations of higher inflation soared alongside tariff threats, according to a closely watched gauge from the University of Michigan.
Why it matters: Receding economic optimism, at least if prolonged, risks consumers holding back on the type of spending that has bolstered the economy.
- It is too soon for any possible fallout from President Trump's trade policy to show up in official economic indicators. But the sentiment data is the strongest warning yet that consumers have jitters.
What they're saying: "Many consumers appear worried that high inflation will return within the next year," Joanne Hsu, the director of the university's surveys of consumers, said in a release.
- The release showed large spikes in consumers' inflation expectations following tariff news from the White House, including last week's announcement of tariffs on Canada, Mexico and China.
Between the lines: Politics can impact how consumers view the economy. But that did not appear to be the case this month.
- Consumer sentiment fell by nearly 5 points in early February — the second straight monthly decline, which pushed sentiment to the lowest since July 2024.
- "The decrease was pervasive, with Republicans, Independents, and Democrats all posting sentiment declines from January, along with consumers across age and wealth groups," Hsu said in a release.
The intrigue: Expectations for personal finances also fell across political parties, to the lowest reading since October 2023.
- A gauge of buying conditions for durable goods fell by 12%, "in part due to a perception that it may be too late to avoid the negative impact of tariff policy."
What to watch: Inflation remains above the 2% level targeted by policymakers, but consumers anticipate prices will rise at a significantly quicker pace.
- Consumer inflation expectations rose to 4.3% in the year ahead, a significant increase from the 3.3% in January.
- The university said it was the second month of "unusually large increases."
