After Trump’s pause on ‘Reciprocal Tariffs’, Consumers felt a little better

Key Takeaways

• The Michigan Consumer Sentiment Index has improved slightly compared to the preliminary April results. However, the surveys still show that consumers have the worst feelings about the economy they’ve had since July 2022.
• The report revealed several warning signs about the economy.
• Inflation expectations remain at the highest level since 1981 as consumers continue to expect price increases due to the ongoing trade conflicts.

The freefall of consumer sentiment at the end April slowed down a bit, as President Donald Trump said that the highest tariffs might be negotiated to lower levels.

The Michigan Consumer Sentiment Index closed April with a reading 52.2, which was better than the initial reading of 50.8, which the survey showed two week ago. The results surprised economists who were surveyed by The Wall Street Journal & Dow Jones Newswires. They expected no change from the final survey of the month.

The survey, which was conducted over the course a month, showed that there were improvements after Trump paused “reciprocal” duties for 90-days.  However, April’s results were the lowest they have been since July 2022. They are also down 32% on last year.

Joanne Hsu is the Director of Consumer Surveys. She said, “Consumers have become increasingly uneasy about economic policy developments.” “The announcement wasn’t enough to calm consumers’ fears about the impact of trade policy on economic growth.”

Hsu said that the pause helped to soften the pessimism about inflation expectations as it improved slightly compared to earlier in the month. Despite the high readings, they were still very high. Consumers expect inflation to hit 6.5% next year, the highest rate since 1981.

The Impact of Tariff Policy on Public Sentiment

Analysts and economists have been closely watching consumer sentiment readings since Trump's tariff talk began.

Optimism has sharply declined since January. Economists blame Trump’s on and off trade policies which began shortly after Trump’s inauguration. Since two-thirds (or about 67%) of the economy is dependent on consumer spending, economists monitor sentiment surveys to determine if shoppers are starting to spend less. 

Hsu stated that the consumers’ expectations for income growth are the most concerning. “Without consistently high incomes, spending will not remain robust in spite of the many warning signs noted by consumers.”