Tariffs make consumers and businesses anxious

• It's likely that signs would first appear in key surveys of businesses and shoppers — though it is still early and the pandemic recovery exposed the flaws of these measurements.

The big picture: Excitement about potential Trump-era deregulation and tax cuts drove consumer and executive sentiment higher right after the election. Now fears about trade war fallout might overshadow those business-friendly policies.

• The University of Michigan's measure of consumer sentiment fell about 10% this month relative to January, the second consecutive decline.
• Buying conditions for large-ticket items plunged almost 20% in February, a sign that consumers anticipate tariff-related price increases.
• Meanwhile, expectations for inflation in the year ahead surged a full point to 4.3%, above the range seen in pre-pandemic times.

What they're saying: "Consumers broadly anticipate that tariff hikes will lead to higher inflation, but policy uncertainty means that their views are subject to change," UMich's Joanne Hsu said in a statement, adding that 40% of consumers surveyed spontaneously mentioned "tariffs" — up from 27% last month.

They're not alone in their anxiety: Small businesses — the economy's biggest hiring machine — are marking down capital investment plans, according to an index from the National Federation of Independent Business, a lobbying group.

• Headline sentiment remains above the historical average, but a measure of uncertainty is the third-highest on records going back almost 40 years.

S&P Global's preliminary purchasing managers' indices suggested a sharp slowdown.

• An output index across goods and services fell 2.3 points in early February to the lowest in 17 months, signaling "a steep deceleration in the pace of economic growth over the past two months from a buoyant rate seen late last year," according to a statement.
• Companies said "tariffs were widely cited as a key cause of higher prices in the manufacturing sector."

Of note: "Despite fearmongering by Democrats and the media over President Trump's trade policies — that did not drum up inflation during his first term — the Trump administration remains committed to delivering economic relief for everyday Americans and restoring American Greatness," White House spokesperson Kush Desai tells Axios.

Surveys of businesses and consumers may have become less reliable as early indicators of how the economy will perform in this highly polarized age.

The intrigue: In the Biden era, there was a mismatch between tanking sentiment and strong economic activity — a factor that might have been influenced by politics. That phenomenon may extend into the Trump years.

• For instance, depressed sentiment and higher inflation expectations in February were concentrated among Democrats and independents, according to UMich.
• UMich's sentiment index dropped 14 points among Democrats and roughly half as much for independents.
• Among Republicans, sentiment held at the highest level since the 2020 election. Democrats' sentiment hasn't been this low since April 2020.
• "Consumers are feeling gloomier, but the post pandemic economy has taught us attitudes don't always drive spending decisions," Nationwide financial market economist Oren Klachkin wrote in a client note.

Between the lines: More and more surveys about economic conditions appear not to offer independent information about peoples' plans to spend money or buy a car, but rather whether they do or do not like the person in the White House.

The bottom line: Survey-based data offer early warning signs of trouble, but it's what people do, not what they say, that will determine how the Trump economy turns out.