Donald Trump’s tariffs spook consumers weary of inflation

Stay informed with free updates

Simply sign up to the US economy myFT Digest — delivered directly to your inbox.

US consumers are growing increasingly anxious as President Donald Trump rolls out an agenda that includes tariffs on an array of trading partners. 

A pair of surveys closely watched on Wall Street have revealed a darkening outlook for the economy that stands in contrast to the ebullience that greeted Trump’s election in November. 

The sombre mood among consumers — a pillar of America’s robust economic growth — has worried some investors and stoked a decline in Wall Street’s S&P 500 equities index in recent days.

The Conference Board’s Consumer Confidence Index this month fell by the most since August 2021, when the contagious Delta variant of the coronavirus was sweeping through the country. Survey respondents mentioned trade and tariffs at a level not seen since Trump’s first term in 2019, said the Conference Board, a think-tank. 

In the University of Michigan’s survey of consumer sentiment, about two in five respondents spontaneously mentioned tariffs, up from less than 2 per cent before the election, as overall sentiment declined by 10 per cent. All five components of the Michigan index deteriorated, a rare occurrence, said survey director Joanne Hsu. 

“The declines this month were unanimous across different demographic groups, as well as across multiple dimensions of the economy,” Hsu said.

“People are feeling less confident about personal finances, about buying conditions for big-ticket items as well as about business conditions both right now and in the future.” 

The Michigan index had improved for five straight months to December as expectations for the economy rose. Some consumers felt relief that the presidential election ended without a drawn-out fight, as when Trump disputed his loss to Joe Biden in 2020. Executives also praised Trump’s deregulatory agenda. 

The president made tariffs central to his campaign. Since his inauguration, Trump has imposed an additional 10 per cent levy on imports from China, threatened 25 per cent tariffs on Canada and Mexico, planned 25 per cent tariffs on all steel and aluminium, and unveiled “reciprocal” tariffs on many trading partners. 

By raising the cost of imported goods, tariffs can drive up consumer prices, economists said. The US economy has struggled to vanquish inflation that surged during the pandemic. The retail price of eggs, for instance, has risen more than 50 per cent in the past year, offering a visible reminder of the higher cost of living. 

Consumers are “skittish about the potential for tariffs, because most know those lead to higher prices. The ghosts of inflation past are still haunting many consumers,” said Ryan Sweet, chief US economist at Oxford Economics. 

The Conference Board’s February survey found that average consumer inflation expectations jumped from 5.2 per cent to 6 per cent in February. 

Consumer spending has remained durable despite inflationary pressures. US retail sales in January declined from the Christmas period but rose 4.2 per cent year over year, according to Census Bureau figures that are not adjusted for inflation. The Home Depot, the nation’s largest hardware chain, on Tuesday said it expected consumers to “remain healthy” as its same-store sales returned to growth after two years of decline.

But some consumer goods companies have pointed to signs of weakness. 

“The consumer is absolutely under stress and we’ve been talking about this for a while,” Linda Rendle, chief executive of Clorox, told the Consumer Analyst Group of New York conference last week. They are “stuffing the trash bag and they’re using the very last spray on that spray bottle”, said the boss of the maker of household products such as bleach. 

Andre Schulten, chief financial officer at consumer goods company Procter & Gamble, told the conference he expected “the environment around us to continue to be volatile and challenging, from input costs to currencies to consumer, retailer and geopolitical dynamics”. 

He added: “Tariffs enacted and proposed introduce additional layers of volatility we’re watching closely, such as direct cost impacts from moving raw material and finished product across borders, the impact on foreign exchange rates, on interest rates, and the impact of nationalistic consumer behaviour.”

The Conference Board survey revealed a worsening consumer outlook for business conditions, jobs and the stock market. The S&P 500 closed down 0.5 per cent on Tuesday after the release of the confidence survey.

“The consumer is getting worried about what at a macro level looks like stagflation — namely fewer jobs, slower growth, more inflation,” said Torsten Slok, chief economist at investment firm Apollo Global Management.