“Consumer confidence declined for a fifth consecutive month in April, falling to levels not seen since the onset of the COVID pandemic,” said Stephanie Guichard, Senior Economist, Global Indicators at The Conference Board. “The decline was largely driven by consumers’ expectations. The three expectation components—business conditions, employment prospects, and future income—all deteriorated sharply, reflecting pervasive pessimism about the future.”
The University of Michigan’s Sentiment Survey Index has also declined for five consecutive months, from 74 to 50.8. It’s mainly about the growing inflation fears.
“Year-ahead inflation expectations surged from 6.5% last month to 7.3% this month. This month’s rise was seen among Democrats and Republicans alike. Long-run inflation expectations lifted from 4.4% in April to 4.6% in May, reflecting a particularly large monthly jump among Republicans.” Survey Director Joanne Hsu.
Why so much doom and gloom in surveys while consumers are still fully employed? Consumers don’t like uncertainty any more than businesses. and their lack of confidence could have an even larger impact on economic growth than uncertainty in the financial markets.
Consumer activity drives two-thirds of economic growth, and a recession begins when a majority begin to save more than they spend for a prolonged period. There are many ways to measure this, such as a growing cutback in retail sales.
Retail sales rose just 0.1% in April. That’s a big comedown from a 1.7% spike in March that marked the biggest increase in more than two years because consumers bought ahead of the April 2 tariff announcements that imports from all 180 countries in the world would be taxed at least 10 percent.
Retail sales account for one-third of consumer spending and and shoppers have been hunting for more bargains. Sales have declined in three of the past 13 months as portrayed in the FRED graph and were flat another three months, but are still 4.7 percent higher in a year.
Motor vehicle and parts dealers were up 9.4 percent (±1.8 percent) from last year because consumers knew that motor vehicle import taxes (i.e., tariffs) of at least 25 percent had already been announced, while food service and drinking places were up 7.8 percent (±1.8 percent) from April 2024.
The Conference Board’s Index of Leading Economic Indicators (LEI), another growth indicator that attempts to predict future growth, showed more weakness.
“The US LEI for March pointed to slowing economic activity ahead,” said Justyna Zabinska-La Monica, Senior Manager, Business Cycle Indicators, at The Conference Board. “March’s decline was concentrated among three components that weakened amid soaring economic uncertainty ahead of pending tariff announcements: 1) consumer expectations dropped further, 2) stock prices recorded their largest monthly decline since September 2022, and 3) new orders in manufacturing softened.
Manufacturing will be hardest hit, because Trump’s tariffs will bring higher inflation and interest rates, which especially hurts manufacturers because they need to borrow lots of money to build their factories. The LEI survey reported new manufacturing orders were already softening.
This will defeat what he says is the main reason for tariffs—bringing manufacturers home—as will the immigration crackdown, which reduces the working age population at a time of worker shortage. The Manufacturing Institute and Deloitte accounting firm have projected that manufacturing will need an additional 3.8 million workers by 2033. Where will they come from?
In fact, this tells us it’s not the real reason for his tariffs, since he is more concerned about cutting taxes and federal spending that would also disincentivize more domestic manufacturing investment.
No, it looks like Trump’s chaotic tariff war will create bottlenecks last seen during the COVID-19 pandemic or worse, unless he relents.
We know what those supply interruptions did to economic growth during the pandemic and why it took the succeeding Biden administration four years to fix with its bipartisan New, New Deal legislation.
Harlan Green © 2025
Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen
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