American consumer sentiment plunges on trade war fears

Why is a decline in consumer sentiment a bad thing?  Consumption is the largest driver for climate change and environmental degradation.  Previous administrations shut down access to cheap energy which is a critical component for everything in our economy.  And that raised prices on everything.  International trade on today's scale would be impossible without access to cheap energy.  Are we supposed to kill ourselves to make the rich richer?  Consumption has been the monster truck rolling coal in the corner that everyone ignores.

Added to that is the fact that foreign investors, to some extent, have been using the stock market to influence boardroom behavior.  Yes, foreigners are allowed to vote their shares in the United States to influence business and political decisions.  How much of the fall in the US stock markets is due to foreign investors trying to manipulate and coerce a change in US government policy?  We know that past Presidents would respond to a manipulated market to appease investors.  But this time is different.  Don't be surprised if foreign interests actively operating inside the United States try to hurt consumers and workers to protect their influence over the US economy.

Will the impact of tariffs really be that large?  Tariffs are taxes based on wholesale price at the port of entry.  Shipping costs are not taxed but are also passed on to consumers.  So, the impact of a tariff will only be a much smaller fraction of the retail price.  If the wholesale price of a good is 10 pct of the retail price then a 25 pct tariff should only increase the retail price by 2.5 pct; not an outrageous price increase.  Raw materials are not traded at wholesale prices so tariffs would have a larger impact on manufacturing.  But the cost of raw materials are a small fraction of the retail price of goods so, again, the impact of the tariffs will be diluted and not as large as the fearmongers would have us believe.  

The public is being informed by neoliberal gimmicks.  One such gimmick is trotting out pictures of hardware shelves to raise concerns about a trade war.  How much of the household budget is spent on hardware?  When pictures of consumers and store shelves are used to fearmonger about a trade war that means foreign interests are using our own people to coerce our own government.  The supply-side hoax exploits consumers to make the rich richer.  If consumers stop consuming then the rich won't get richer.  Supply-side economists are not concerned about consumers; they're concerned about profits.  And supply-side economists will cause as much consumer pain as possible to protect their profits.  

S E E D E D   C O N T E N T

Washington (CNN)  — The Trump bump in consumer sentiment is now a Trump slump.

Americans continue to grow worried over President Donald Trump’s escalating and haphazard trade war, according to the University of Michigan’s latest consumer survey released Friday. Consumer sentiment fell 11% this month to a reading of 57.9, a preliminary reading showed, down from last month’s reading of 64.7 and reaching its lowest level since November 2022. That’s a sharp retreat from December, after the US presidential election, when sentiment rose to its highest level in months.

The Trump administration’s rollout of its long-promised tariffs has been both erratic and contentious: Earlier this month, Trump imposed 25% tariffs on Mexico and Canada, only to delay those duties again after pleas from business leaders; then after US tariffs on steel and aluminum imports went into effect Wednesday, the European Union and Canada responded swiftly with their own tariffs.

That’s caused uncertainty to intensify in recent weeks, rattling Wall Street and making it difficult for companies to plan ahead, according to recent business surveys. It’s also sowed inflation fears. Americans’ expectations for inflation in the year ahead climbed to 4.9% this month from 4.3%, the highest level since November 2022 “and marking three consecutive months of unusually large increases of 0.5 percentage points or more,” according to a release.

“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,” Joanne Hsu, the survey’s director, said in a release.

“Consumers from all three political affiliations are in agreement that the outlook has weakened since February,” she said.

Uncertainty at an inflection point?

The tariff-induced uncertainty comes as the US economy shows some signs of weakness — and the jury is out as to whether the situation will take a turn for the worse.

In January, consumer spending declined for the first time in nearly two years as home construction plummeted. Executives at major companies such as Target, Walmart and Delta Air Lines have recently warned of consumers feeling stretched and possibly pulling back this year. A closely watched real-time forecast of economic growth from the Federal Reserve Bank of Atlanta shows the economy contracting a sharp 2.4% in the current quarter.

And of course, various consumer surveys have showed that Americans are feeling uneasy.

Trump did not rule out the possibility of a recession this year, when asked in an interview that aired Sunday. That triggered a massive selloff on Wall Street.

Still, the economy could keep its head above water simply because America’s labor market is holding steady, with unemployment still at a historically low level.

“The consumer has been the workhorse of this economic cycle that will remain the case even as we move through this slower consumption patch,” Jeff Schulze, head of economic and market strategy at ClearBridge Investments, told CNN. “And the biggest driver of consumption in the US tends to be the labor market.”

An economic puzzle for the Fed

In addition to signs of a slowing economy, short-term inflation expectations have trended up in recent months as Trump’s tariffs threaten higher inflation if a global trade war spirals out of control — a toxic combination resembling “stagflation.”

That’s a scenario in which growth flattens or turns negative as inflation picks up. Federal Reserve officials have been making sense of the economy’s various signals and are set to meet for their latest policy meeting next week.

“You essentially have opposing forces in the economy,” said Tom Bruce, macro investment strategist at Tanglewood Total Wealth Management. ” With tariffs, you have the threat of higher prices; and with sentiment declining, you start getting concerns about growth because businesses won’t be investing the way they otherwise would have, which can hamper economic growth.”

In recent speeches, Fed policymakers have signaled that they’re inclined to hold interest rates steady next week and in the months ahead as they await for some clarity on how the economy responds to Trump’s barrage of policy changes.

Fed Chair Jerome Powell said last week that how the central bank responds depends on “the net effect of these policy changes,” which, in addition to tariffs, also encompasses an aggressive crackdown on immigration and mass layoffs of federal workers.

“It’s not simply what’s happening with tariffs, it’s what’s happening with growth and all the other things as a result of these broad changes in economic policy, not just tariffs,” Powell said.