What February’s sharp declines in consumer sentiment mean for the economy
What February’s sharp declines in consumer sentiment mean for the economy
On Tuesday, the Conference Board reported the biggest monthly decline in consumer confidence since 2021. February was the third straight month confidence fell — about everything from future business conditions to incomes, jobs and family spending plans.
Last week, in its final consumer survey for the month, the University of Michigan also reported a sharp decline in optimism — along with a sharp increase in inflation expectations.
There have been signs of rising consumer agita for months, according to Tuan Nguyen at consulting firm RSM. But the latest decline in sentiment?
“It was quite a surprise,” he said. “We did not anticipate it would be this significant.”
The main factor driving it? “Consumers are increasingly concerned about inflation. We are seeing the impact of higher food prices, particularly egg prices, rising gasoline costs, and talk around higher tariffs,” said Nguyen.
Mostly, threatened tariffs haven’t happened yet.
Still, “a big part of what’s going on is uncertainty. It’s in a lot of headlines right now — economists are saying they’re uncertain about things, we see it in the Fed meeting minutes,” said economist Elizabeth Renter at NerdWallet.
Economist Robert Frick at Navy Federal Credit Union calls it “a sense of foreboding — with tariffs and with layoffs of federal workers, which the Trump administration has started to implement.
“You could lose 10% of the federal workforce — 300,000 people. You could lose half a million federal contractors,” said Frick.
We don’t know how all this tariff-raising and job-cutting is going to turn out, but the uncertainty is bumming consumers out.
So does that mean they’re likely to pull back their spending? Probably not, Frick said. “Consumer confidence and consumer sentiment have very little bearing on how people actually spend.”
As long as consumers’ incomes are going up and beating inflation, he added that they’re likely to keep spending.
Meanwhile, fears of tariff-driven inflation might actually encourage more spending, per Elizabeth Renter.
“If I had plans to purchase a vehicle in 2025, but I think vehicle prices are going to climb significantly over the next year, I might accelerate that — purchase it right now,” she said.
And Renter warned that this accelerated spending to get a jump on tariffs could drive some consumers to take on more high-interest debt than they can afford.
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