US consumer sentiment slides to 3-year lows as trade war raises
inflation anxiety
[May 17, 2025] By
CHRISTOPHER RUGABER
WASHINGTON (AP) — U.S. consumer sentiment fell slightly in May for the
fifth straight month, surprising economists, as Americans increasingly
worry that President Donald Trump’s trade war will worsen inflation.
The preliminary reading of the University of Michigan’s closely watched
consumer sentiment index, released Friday, declined 2.7% on a monthly
basis to 50.8, the second-lowest level in the nearly 75-year history of
the survey. The only lower reading was in June 2022. Since January,
sentiment has tumbled nearly 30%.
Americans have largely taken a sour view about where the economy is
headed in the wake of the Trump administration’s imposition of huge
import duties, which threaten to slow growth and push up prices. In
recent weeks the White House has pulled back on its most draconian
policies, though average duties are still high by historical standards.
Consumers' outlooks are also sharply divided by their political views,
which has caused some economists to question the survey's results. The
University of Michigan also last year switched from using both online
and phone responses to just online, which some analysts worry may have
introduced a more negative bias.
The sentiment index for Democrats fell to 33.9 this month, the lowest
since partisan data began in 1980 and far below the levels reached in
the depths of the COVID pandemic or during the 2008-2009 Great
Recession.
For Republicans, it's 84.2, though that slipped from 90.2 in April and
is the lowest since Trump's election.
Trump had slapped 145% tariffs on all imports from China, a move that
effectively suspended trade with the United States’ third-largest
trading partner in goods. But on Monday, the two countries said they had
reached a deal that would lower U.S. tariffs to 30%, while China would
cut its duties on U.S. exports to 10% from 125%.
[to top of second column] |
Customers wait in line for eggs at a Costco store in the Van Nuys
section of Los Angeles on Wednesday, Feb. 19, 2025. (AP
Photo/Richard Vogel, File)
 The survey was taken between April
22 and May 13, which includes just two days after the China tariffs
were reduced.
Yet on Thursday Walmart said it had started to lift prices in
response to the tariffs and will do so even more in June and July
just as families gear up the back-to-school season. The company
counts 90% of the U.S. population as customers and price hikes at
the nation’s largest retailer may start to sink in with Americans
who have already been buffeted by post-pandemic inflation.
The survey found consumers are increasingly worried about rising
inflation. Over the next 12 months, consumers expect inflation to
jump to 7.3%, the highest since 1981 and up from an expectation of
6.5% last month. Over the next five years, they foresee inflation
reaching 4.6%, the highest since 1991, up from 4.4% last month.
Those expectations typically run higher than actual inflation, which
last month ticked down to 2.3%, the lowest level in more than four
years. Still, economists and the Federal Reserve closely watch
inflation expectations, because they can become self-fulfilling. If
people are worried inflation will accelerate, they may take steps,
such as demanding higher pay, that can push up prices.
Federal Reserve Chair Jerome Powell has said the Michigan inflation
expectation numbers are an “outlier." Market-based measures of
future inflation, which some Fed officials put greater weight on,
have remained mostly stable. Still, the steady rise in the Michigan
survey's inflation expectations could make it less likely the Fed
will cut its key interest rate anytime soon.
All contents © copyright 2025 Associated Press. All rights reserved |
