Why Is Consumer Confidence Tanking?
Consumer sentiment indexes have shown sharp declines since January.
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Consumer confidence in the economy has plummeted since the start of the year and that can be chalked up to uncertainty more than anything else.
“Fear is the mind killer like uncertainty is the economy killer,” says Ryan Cummings, chief of staff for the Stanford Institute for Economic Policy Research and a former economist at the White House Council of Economic Advisers. He says President Donald Trump’s tariff policies, federal workforce cuts and a reactive stock market are beginning to bleed through into the data and consumers are picking up on it.
“They don’t like the feeling of ‘I really don’t know what’s going to happen, maybe the economy is going to continue trucking on, maybe it’s going to be in a recession,’” says Cummings.
The latest consumer sentiment readings for March are some of the lowest ever. On Tuesday, the Conference Board reported that its Consumer Confidence Index dropped by 7.2 points to 92.9 in March, down from 100.1 in February and 105.3 in January.
When survey respondents were asked what is affecting their views of the economy, they overwhelmingly made comments on the current administration, as well as inflation, concerns about trade policy and uncertainty about the economy and policy.
Meanwhile, the most recent consumer sentiment readings for March by the University of Michigan Index are some of the lowest ever. The all-time low was 50 in June 2022 at the height of inflation, but current levels (57.9 in March) match months during the stagflation of the 1980s, as well as the Great Recession and its aftermath.
Respondents to the University of Michigan Survey, regardless of political affiliation, cited uncertainty around economic policies making it difficult to plan for the future. The drop in expectations among Republicans was 10%, while independents’ expectations declined by 12% and Democrats’ expectations went down by 24%.
“Democrats are really unhappy about, you know, what's going on, generally, and you definitely see that reflected in their sentiment,” says Cummings. “But we also see a little bit of buyer's remorse from Republicans.”
Voters have also revealed similar disapproval with Trump’s handling of the economy, as seen in recent polling from Fox News, Quinnipiac University and NBC News.
What’s the state of the economy?
By most accounts, the economy still remains strong — inflation has slowed, unemployment is stable and growth has been consistently positive. But there are some other signals that trouble could be ahead.
Consumer spending is declining. How people feel about the economy is one thing, how they act is another. In this case, consumer spending has retreated somewhat, but the declines aren’t dramatic — a 0.2% decline from December to January, which marked the first time in nearly two years when spending went down from one month to the next, according to the personal consumption expenditures (PCE) data from the Bureau of Economic Analysis. It’s unclear if this was a blip or if the trend will continue; the next set of PCE data will be out on Friday.
Growth projections aren’t promising. A March 3 forecasting tool published by the Atlanta Federal Reserve shows negative growth for the first quarter of 2025. Preliminary gross domestic product (GDP) data for Q1 won’t be in until the end of April, but if the tool is correct then it would be the first GDP decline since the first and second quarters of 2022 when inflation was building to and hitting its peak.
Inflation growth has slowed, but prices remain elevated. Annual inflation, as measured by the consumer price index (CPI) hit an all-time high of 9% in June 2022. It has since slowed considerably and is now near pre-pandemic levels. The latest inflation rate for February is 2.8% compared to a year prior. But that doesn’t mean prices have dropped, especially for necessities: CPI data shows that since 2019, food prices are up 31%, while the home rental website Zillow says rent has increased by nearly 34% over the same period. As Cummings says, “Gas prices, food prices, rent prices—they’re real-time tickers for people on how the government is doing.”
Unemployment is slackening. The unemployment rate increased slightly in February and sits at 4.1% for February, according to the jobs report released on March 7. The full effect of Trump’s federal jobs cuts have yet to show up in the data. Unemployment hit a 50-year low of 3.4% in April 2023 before increasing. But unemployment is stable and has hovered around 4% since April 2024.
Stock markets have been volatile. Since the S&P 500 hit all-time highs following Trump’s inauguration, the index dropped sharply and the decline led to a market correction. But it began to rebound last week and rallied strongly on Monday in response to signals that Trump may moderate his approach to reciprocal tariffs.
Is consumer sentiment a sign of a recession ahead?
The Consumer Confidence Survey’s Expectations Index for March, which is based on consumers’ short-term outlook for income, business and the labor market, dropped to its lowest level in 12 years. Now at 65.2, the Expectations Index is 14.8 points lower than the threshold of 80 that usually indicates a recession ahead.
The combination of weak consumer sentiment and worrying data indicators have led to murmurs of “recession” entering the discourse again. And the Trump Administration hasn’t done much to quell fears.
On March 9, in a Fox News interview, Trump did not rule out the possibility of a recession in the near term. His administration has repeatedly called the current status of the economy a “period of transition.”
Recent consumer sentiment has economists anxious, as it can sometimes be a sign of consumer spending trouble ahead. On March 7, the American Bankers Association Economic Advisory Committee said that the longer Trump’s tariffs remain, the higher the risk of a recession. On March 10, former Treasury Secretary Larry Summers posted on X that he saw a near 50/50 chance of a recession in 2025, also due to Trump’s economic policies.
Multiple tariffs against key trading partners have gone into effect already and another set of tariffs is due to begin on April 2, a day Trump has dubbed “liberation day.”
The UCLA Anderson Forecast for March projects a “Recession Watch” despite the fact that “there are no signs of an imminent recession” in 2025. It attributes its “watch” status to a predicted downturn if Trump fully enacts his agenda for trade, immigration and government downsizing. In the release from Clement Bohr, economist for UCLA Anderson Forecast says, “The exceptional degree of uncertainty surrounding these policies is in and of itself damaging to the economy.”
Meanwhile, the Federal Reserve Open Market Committee, which determines interest rates, lowered its growth expectations for 2025 and increased its inflation expectations, compared to its forecasts in December. But a change in expectations doesn’t mean a recession is inevitable. At a press conference on March 19, Federal Reserve Chair Jerome Powell said, “If you go back two months, people were saying that the likelihood of a recession was extremely low, so [risk] has moved up, but it’s not high.”
Cummings says that people are beginning to retrench, and because the NBER determines recessions retroactively, it’s possible that the U.S. could already be in a recession without official confirmation. "The fact remains, he says that consumer sentiment is at the level where it’s the “trough of a recession.” The question remains whether consumers will keep spending or if the recent slowdown in spending will continue.
The next set of consumer sentiment data from University of Michigan will be released on Friday.
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