Consumer sentiment down nearly 30 percent, tariffs and inflation to blame: CEI analysis

Consumer sentiment is down nearly 30 percent according to an April survey conducted by the University of Michigan. CEI senior economist Ryan Young says stress over tariffs and inflation is driving consumer fears.

“April’s University of Michigan consumer sentiment survey is down almost 30 percent from January and is the second-lowest ever recorded. The only lower reading was in June 2022, near the peak of the post-pandemic inflation. The reason for the despair is tariffs.

“Although tariffs are not the same thing as monetary inflation, they do raise prices. As a result, consumers’ inflation expectations are 7.3 percent, up from 6.5 percent. 

“Actual inflation will likely be lower. But as economists have known  since Robert Lucas’s work in the 1970s, inflation expectations are often at least partially a self-fulfilling prophecy.

“Trump’s recent UK and China tariff agreements might forecast some stability for tariff policy, which would help next month’s survey.

“However, April’s survey does not capture shipping slowdowns and supply chain problems that are beginning to emerge now. Companies like Walmart are also warning that tariffs will cause them to raise prices. That alone could keep consumer sentiment at its current nadir.

“The coming months will have their own challenges. Shelves could become bare in the coming weeks as reduced port traffic winds its way through supply chains. 

“Since most imports are inputs American businesses use, such as components, machinery, and raw materials, those upcoming shortages could cause layoffs and decrease production, especially in manufacturing. That could also harm sentiment in future months if the problems become severe.

“A recession is not a sure thing, but this month’s consumer sentiment survey is one more data point that it is more likely than not we are in one.”