A new study by the Surveys of Consumers at the University of Michigan shows a drastic decline in consumer sentiment as inflation fears rise following President Donald Trump’s tariffs on most countries. The study, led by director Joanne Hsu, was published April 11. The monthly web survey sampled U.S. adults across a wide range of ages, races, political beliefs and socioeconomic statuses.
Consumer sentiment has been declining for four consecutive months, reaching 77.2% in April, a 10.9% decrease from March. The U.S. has seen a rise in inflation expectations, surging from 5% in March to 6.7% this month, which remains the highest reading since 1981. However, currently there are few indicators of future inflation.
In an interview with The Michigan Daily, Hsu said consumers’ spending has significant impacts on the national economy and consumer attitudes are a strong indicator of future economic changes.
“Consumers really are the engine of the national economy,” Hsu said. “The 75+ years of data collection have shown that consumer attitudes are a pretty strong predictor of where the economy is going to go. When sentiment tanks, a recession tends to follow.”
Hsu states the most surprising information from her research is that the perception the economy is deteriorating is not limited to Democrats. Across the political spectrum, Hsu found people with a diverse/varying range of political beliefs have remained consistently concerned over the last four months about potential rises in inflation and unemployment.
“Looking at Republicans alone, even they are seeing a deterioration in the economic outlook over the last couple of months,” Hsu said. “This is the case even though they tend to see the economy more favorably right now because most of them are kind of in agreement with the White House’s policies.”
This data raises concerns for policymakers as the country enters a trade war. In an interview with The Daily, professor of economics Basit Zafar stated consumer sentiments have a direct impact on people’s views of the government.
“Consumer sentiment interacts with political sentiments,” Zafar said. “For example, sentiment typically improves in Republican-leaning areas after a Republican wins the presidential election and vice versa.”
The current consumer sentiment presents challenges for the federal government as it seeks to balance stabilizing inflation and maximizing employment. Hsu described concerns that an economic downturn might occur if consumers stop spending at the same level as they make up a significant percentage of the national economy.
“People are feeling not only concerned about inflation, but also about their own incomes, and they’re worried they might lose their job, which is something that we’re seeing in our data right now as well. They’re not going to be willing to spend at the robust levels that we have been seeing from 2022 to 2024,” Hsu said.
In an interview with The Daily, LSA freshman Maansi Kandula noted recent changes she has made to her spending habits as an out-of-state student.
“I’ve become increasingly more aware of my spending habits,” Kandula said. “Out-of-state tuition is already a big financial commitment for my family. There is so much financial uncertainty right now, and I am scared that tuition is going to rise in the upcoming years. I’ve started budgeting and trying to save as much as I can.”
Daily Staff Contributor Gia Verma can be reached at giaverma@umich.edu.
