U.S. consumer confidence deteriorated at its sharpest pace in three and a half years in February while 12-month inflation expectations surged, offering further signs that Americans were growing anxious about the potential negative economic impact of the policies of President Donald Trump‘s administration.
The Conference Board survey on Tuesday noted that “comments on the current administration and its policies dominated the responses.” It followed on the heels of surveys last week showing steep declines in business and consumer sentiment in February. Tariffs on imports, which Trump has already imposed or is planning to, have been singled out as the major issue in almost every survey of households and businesses.
Economists said unprecedented layoffs of federal government workers were also taking a toll on consumers’ psyche, which they said posed a risk to spending, the main engine of the economy.
“Americans are increasingly pessimistic about the outlook. No Federal government has ever before threatened government workers with mass firings and it is starting to scare the daylights out of consumers,” said Christopher Rupkey, chief economist at FWDBONDS. “The economy could well ground to a halt in the first quarter of the year as consumers stay home.”
The Conference Board’s consumer confidence index dropped 7 points, the biggest decline since August 2021, to 98.3 this month. Economists polled by Reuters had forecast the index falling to only 102.5. The third straight monthly decrease pushed the index to the lowest level since June 2024. It is now at the bottom of the range that has prevailed since 2022.
The cutoff date for the survey was February 19. Confidence slumped across all age groups, with sharp decreases in the 35-55 age cohort. Nearly all income groups reported a decline, with the exception of households earning less than US$15,000 a year and between US$100,000–125,000.
“There was a sharp increase in the mentions of trade and tariffs, back to a level unseen since 2019,” said Stephanie Guichard, senior economist, global indicators at the Conference Board.
Business and consumer sentiment soared following Trump’s victory on hopes for a less-stringent regulatory environment, tax cuts and low inflation. Trump, a Republican, was elected on promises to lower prices. In his first month in office, Trump slapped an additional 10 per cent tariff on Chinese imports. A 25 per cent levy on imports from Mexico and Canada could kick in next week. Trump this month raised tariffs on steel and aluminum imports to 25 per cent.
Tariffs on automobiles, semiconductors and pharmaceutical imports are looming. Tariffs are a tax and economists have warned of higher prices for inflation-weary households.
At the same time, tens of thousands of federal government workers, mostly those on probation, have been fired by billionaire Elon Musk’s Department of Government Efficiency, or DOGE – an entity created by Trump to cut public spending.
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These rapid layoffs and deep spending cuts, which have also affected federal contractors, could reduce the flow of money in the economy and result in private sector job losses, economists warned.
Stocks on Wall Street traded lower. The dollar eased against a basket of currencies. U.S. Treasury yields slipped.
Though economists are not yet predicting a recession, they expect a long period of very slow economic growth and high inflation. That would put the Federal Reserve in a difficult spot. The U.S. central bank paused cutting interest rates in January while policymakers monitored the economic impact of the Trump administration’s policies.
The Fed has reduced its benchmark overnight interest rate by 100 basis points since September, when it embarked on its policy easing cycle. It hiked the policy rate by 5.25 percentage points in 2022 and 2023 to tame inflation.
Consumers’ average 12-month inflation expectations jumped to 6 per cent, the highest since May 2023, from 5.2 per cent last month.
The survey’s so-called labor market differential, derived from data on respondents’ views on whether jobs are plentiful or hard to get, declined to 17.1 from 19.4 in January.
This measure correlates to the unemployment rate in the Labor Department’s monthly employment report. Financial markets believe that labor market weakness will prompt the Fed to resume cutting rates soon. Interest-rate futures contracts were pricing in a more than 70 per cent chance of a 25 basis points rate cut in June and another reduction as soon as September.
“The good interpretation here is that this level of the differential should still be consistent with the unemployment rate trending sideways in the low 4% range, and it remains better than the recent low reading of 12.7 per cent in September,” said Abiel Reinhart, an economist at J.P. Morgan.
“The bad interpretation is that after rebounding between September and December, the differential has now fallen for two straight months, leaning against the story that the labor market may be re-tightening.”
The share of consumers planning to buy motor vehicles over the next six months dipped. Buying intentions for big-ticket items like washing machines, televisions and electronics fell. Planned outlays on services were little changed though consumers’ priorities shifted slightly in favor of personal and health care, as well as movies and live entertainment at the expense of streaming and travel.
Vacation plans dropped further. While the relationship between confidence and consumer spending is weak, the survey aligned with economists’ expectations for a significant slowdown in consumption and economic growth in the first quarter.
“This adds to the building evidence that economic growth will moderate this year,” said Ben Ayers, senior economist at Nationwide. “More households are tightening their belts in 2025 in response to building uncertainty about the forward financial picture.”
