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March 18, 2025
US Consumer Sentiment Hits Lowest Point Since 2022 Due to Tariff Concerns: How Will Consumers React?
The state of the American consumer’s health appears to be in flux, largely due to economic uncertainty and policy direction initiated by President Donald Trump in the early days of his second term.
According to CNBC, the University of Michigan Survey of Consumers posted a March reading of 57.9 — a figure that represents a 10.5% decline from February and that also fell short of the Dow Jones consensus estimate of 63.2. The reading is also the lowest measured since November of 2022 and is a significant 27.1% drop from the reading taken a year ago.
The overall lowered sentiment among American consumers appeared to cross party lines, at least in part.
“Many consumers cited the high level of uncertainty around policy and other economic factors; frequent gyrations in economic policies make it very difficult for consumers to plan for the future, regardless of one’s policy preferences,” said Joanne Hsu, the survey’s director.
Republicans, Democrats, and Independents Saw Lowered Consumer Sentiment, but by Different Degrees
“Consumers from all three political affiliations are in agreement that the outlook has weakened since February,” Hsu noted.
“Despite their greater confidence following the election, Republicans posted a sizable 10% decline in their expectations index in March,” she added.
Sentiment fell even more for respondents identifying as Democrats, with a tumble of 24%, while Independents saw sentiment drop by 12%.
Inflation fears tied to tariffs and associated economic policies issued by the Trump administration also seemed to have ticked upward, per CNBC. The one-year outlook trended upward to 4.9%, the highest reading since November 2022, and was up 0.6% when compared to February’s number. Regarding the five-year outlook, that jumped by 0.4% to rest at 3.9% — notably, the highest measurement since February of 1993.
Pantheon Macroeconomics Chief Economist Samuel Tombs expressed his position on the report’s findings in unambiguous terms.
“This is a horrific report. Elevated economic policy uncertainty and the sharp drop in stock prices have greatly undermined consumer confidence,” Tombs said, according to Retail Dive.
Tombs went on to issue a prediction regarding year-over-year growth in consumption for the first quarter of 2025, suggesting that said growth would slip to 1.5% from Q4’s rate of 3.2%. March could be even worse, the economist indicated.
“The March level [of consumer sentiment] alone points to even slower growth — just 0.5%,” Tombs concluded.
Discussion Questions
Will consumer sentiment improve over the course of the next few months or further decline?
What can retailers do to combat negative consumer sentiment, if anything?
Are consumers right to exhibit falling sentiment? Why or why not? What can consumers do to evade or mitigate macroeconomic pressure and best leverage their discretionary spend?
Poll
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Jamie Tenser
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We’re already seeing the reaction. While it was also influenced by other factors (like weather and a calendar shift), the February retail sales number was weak. Consumers are uncertain, and that means they’re pausing more before making purchases and sometimes foregoing more expensive buys. People like stability and certainty, and we don’t have that right now. We need an injection of good news, something to boost spirits, or a clearer sense of where things are headed.
If 2025 continues to wallop consumers, companies and investors with whiplash as the norm, consumer sentiment will keep declining. Retailers that emphasize good value for essentials may attract new customers and earn loyalty during this tricky period.
Every day, the news is shocking. From our diminished stature in the world, to our active support of Russia and surreal pricing at the grocery store, consumers are understandably holding their wallet tighter. And who knows what will happen tomorrow.
The many tariffs announced by the administration have not even come into effect yet, so I expect consumer sentiment to decline further in the months to come. When consumer sentiment declines, people stop buying, or at the very least, buy less. This will be felt across the board. The only thing that will help improve sentiment is stability. The stock market thrash in response to almost daily policy changes is not helpful. And as consumers watch their 401K plans precipitously drop with these changes, who’s going to buy a home or a new car? After years of protracted inflation, US consumers are already battle-tested for higher prices, so rising prices alone is not what’s causing consumer sentiment to nose-dive – it’s the utter uncertainty about policies that are making consumers feel poorer, with no ability to control outcomes.
The combination of provocative executive actions and rising economic uncertainty is a punishing formula for consumer sentiment. Households face the stark reality that years – sometimes decades – of painstaking retirement planning may be instantly sabotaged by changes in policy.
Meanwhile, capital intensive businesses are grappling with existential decisions about where to source and manufacture. Carefully-considered bets, such as, “Where to build our next factory?” and “What markets will we target?” require some confidence that current trends will remain reasonably predictable.
As the final links in the product chain, retailers are faced with delivering the tough news about prices and fluctuating availability to shoppers, who are already sensitized by two years of inflation and frightened by the endless stream of announcements pouring out of the Nation’s capital. Stores can’t do much to lower their COGS, but they can run efficient businesses and communicate their commitment to delivering good value.
Yes. Of course sentiment measures are falling. America’s consumers are tired and triggered. They know they are being messed with, and aware that they have limited power to change that (until the next election).
As much as I try not to be political in my writings for this outstanding newsletter, today’s topic is political, so I wish to present a different tone and perspective.
First off, as soon as I read that the source is NBC, or any subsidiary of NBC, I already take the information with a huge grain of salt, because NBC is extremely biased against President Trump. Much of what NBC reports is based on biased surveys, using a biased process, or biased sources, which support unbalanced narratives.
The same can be said about Pantheon Macroeconomics’ Chief Economist Samuel Tombs. Whenever conservatives are in charge of government, whether in America or Europe, his macroeconomics often conclude that the sky is falling faster than ever before. The reporting of macroeconomic data can also be quite manipulative when that is the intention.
According to reports on Fox News, who has the opposite bias of NBC, despite tariffs and negative mainstream media, most consumers are optimistic, and they attribute their optimism to stable job growth, low unemployment rates, rising wages, increases in disposable income, lower inflation, lower gas prices, fewer regulations, a terrific atmosphere for small business, and near-future lower taxes.
Many reliable surveys indicate high consumer confidence levels, and optimism about financial status.
For the first time in four years, inflation is now under control, and gas prices are declining.
Tariffs are understood by unbiased analysts and resourceful individuals. Despite short-term worries or temporary misperceptions, I totally believe that the stock market will recharge soon enough and set new records by the end of the year.
Several retail executives I speak with report that sales are quite good, and much better than they were under Biden and the Democratic Congress, and there is optimism for the future.
“Economics” are just numbers, and numbers are manipulative, and unfortunately, there is so much bias in today’s reporting, that manipulated numbers are reported more often than not.
David, CNBC is reporting the Michigan survey data, not making up the numbers out of whole cloth. The Wall Street Journal (which is probably more objective than either Fox or NBC) is no fan of tariffs, and the unintended consequences of the sweeping actions promised for April 2nd are hard for anyone to foresee.
It’s very clear, and has been reported in the WSJ that ceos did not expect this. They thought they were going to have lower taxes and relaxed environmental controls . Tariffs are the exact opposite of that. No one likes this who understands economics and human nature
Agree completely!
Of course consumers are right to exhibit falling sentiment (if only they’d wised up a few months back). To what extent consumers need to modify their behavior depends a lot, of course, on their individual circumstances.
Higher prices, regardless of how it happens, will have customers spending more to get less. Add to that a level of uncertainty in future prices due to tariffs and inflation, and retailers will have to get creative to get customers to spend their hard-earned money in their stores and not a competitor’s store.
I’ve been saying since the election that consumers are going to pull back this year. Retail sales growth is looking very unlikely overall for 2025 because consumers are afraid of all the uncertainty the tariff talk continues to cause.
Will consumer sentiment improve over the course of the next few months or further decline?
Hmmm? Imagine what consumer sentiment will be like when the consumers see the actual prices caused by the tariffs.
Uncertainty erodes confidence. Inflation, tariffs, massive job losses, crashing markets. All of this is tied to political ideology and not macroeconomic trends. But as the news gets worse and the hits pile up, that little distinction becomes irrelevant. What we saw in February is just the tip of the iceberg.
The consumer is always finicky. Excluding any political issues- there is however continued inflation, fears of stagflation, uncertainty around tariff impact, a drop in the stock market, and job cuts across the federal govt that continues to affect the overall economic climate. Even the President states there may be a recession. Regardless, the economy is relatively strong and the economic downturn reality is still speculation. Many companies are starting to brace for a change though and that’s enough to give pause. Hiring freezes, high prices for commodity items, and a slowdown in consumer spending is evident. That said, I’m always optimistic about retail. We will always need our toilet paper. Frankly, not all of it can be controlled by policy anyhow. The best steps for retailers is to fiind ways to make it easier to keep customers and stay ahead of competitors. The consumer needs to stay finicky and be as selective as ever – and if things turn out not so bad, they’ll have extra cash in the bank.
Buckle in. There is zero reason to believe that Washington DC is going to wake up any day soon and say, “Gosh, what were we thinking?”. Each new day brings a new curve ball. And customers are already pulling back out of sheer uncertainty. Wait until the actual price increases go into effect. And if the next round of tariffs don’t go into effect April 2nd, can we then all relax? Nope. How could we? On again, off again. Maybe, maybe next month. What product categories, from what countries…??? And can businesses plan on moving production around the globe? Based on what criteria?
It’s not just buckle in. Have air bags at the ready.
Sure, sentiment is declining among consumers and that is understandable. But consumers are short-term thinkers who do not understand tariffs and how America is being ripped off by other countries. So, let’s look at the big picture long term. America needs to reduce spending, reduce the size of government, eliminate waste, fraud and abuse, and force other countries to treat us fairly. The interest on our debt is larger than our military budget. That is insane. If America does not get its fiscal house in order, we will go bankrupt in 15 years. That is just math. There will be no social security, no Medicare, no nothing. What do you suppose consumer sentiment will be then?
It’s logical that consumer sentiment is declining. The pace and magnitude of the U.S.’ post-pandemic economic recovery over the past several years have been the envy of the Western world. Now consumers are faced with fear, uncertainty, and doubt driven by tariffs, job cuts, and spending cuts that will hit millions’ ability to spend. Many retailers are acting intelligently by increasing orders before the tariffs take effect and exploring alternate suppliers, so the actual cost increase effects will be felt over time, not immediately. But they will come. In this climate of uncertainty about the future, it’s possible, if not likely, that consumers will be less willing to buy at higher prices than they were during the supply chain implosion of 2020-21. Thoughts?
Report after report confirms the consumer is under pressure. For example, the latest Fed reading showed total householold debt increased, aggregate delinquency rates ticked up from the previous quarter (serious delinquency rates increased across auto, credit card and HELOC categories) and mortgage balances rose. Add uncertainty on the price of staples (i.e. grocery items) and durable goods (i.e. appliances, autos, furniture) and you have an environment where discretionary spend will be impacted. Retailers need to continue their emphasis on creating, and communicating, value across their services and offerings. Additionally, they’ll need to adopt technology and implement revised workflows to capture efficiency gains.
These numbers are only based on expectations. Can you imagine the scenario when they come to fruition?