Consumer sentiment in the United States took a turn for the worse in August 2025, as new tariffs imposed by President Donald Trump on nearly 70 countries began to ripple through the economy, according to the latest University of Michigan Survey data released on August 15. The survey, closely watched by economists and policymakers alike, showed that consumer confidence fell short of expectations, snapping a brief two-month stretch of improving attitudes among shoppers. This downturn marks a return to the months-long malaise that has dogged consumer sentiment since Trump took office, and it comes at a time when Americans are bracing for the potential impact of higher prices at the checkout line.
The timing of the report could hardly be more striking. Just days earlier, an inflation reading had come in lower than anticipated, offering a glimmer of hope for consumers already wary of price hikes triggered by the administration’s sweeping tariffs. Yet, the optimism proved short-lived. The University of Michigan data revealed that year-ahead inflation expectations jumped from 4.5% in July to 4.9% in August—well above the current inflation level of 2.7%. This spike in expectations was broad-based, cutting across the political spectrum, and suggests that Americans are increasingly convinced that higher prices are here to stay.
“The heightened inflation expectation occurred across people of all political affiliations,” the survey noted, underscoring the widespread nature of the concern. For many, this anxiety is not just theoretical. Consumer spending, which makes up about two-thirds of U.S. economic activity, is a crucial bellwether for the nation’s economic outlook. Recent indicators have pointed to a possible slowdown, and the new sentiment data only adds to the sense of unease.
Adding to the uncertainty, the U.S. Bureau of Labor Statistics (BLS) released a jobs report on August 1 that revealed a sharp cooldown in the labor market. Hours after the report’s release, President Trump fired BLS Commissioner Erika McEntarfer, a Biden appointee who had been confirmed by the Senate in 2024 and had served in the federal government for two decades. Trump accused McEntarfer, without evidence, of “faked” statistics—a claim that quickly drew condemnation from economists and former officials alike.
“It has been the honor of my life to serve as Commissioner of BLS alongside the many dedicated civil servants tasked with measuring a vast and dynamic economy,” McEntarfer said in a social media post following her dismissal. “It is vital and important work and I thank them for their service to this nation.” William Beach, a former BLS commissioner appointed by Trump, was blunt in his criticism: “The totally groundless firing of Dr. Erika McEntarfer, my successor as Commissioner of Labor Statistics at BLS, sets a dangerous precedent and undermines the statistical mission of the Bureau,” he posted on X.
Despite these headwinds, some aspects of the economy have shown resilience. The United States has largely avoided the widespread job losses that typically accompany a recession, and consumer spending actually ticked higher over the three months ending in June. Corporate earnings have remained robust, and the Federal Reserve has so far opted to hold interest rates steady, even as it voices concern about the inflationary impact of tariffs.
Federal Reserve Chair Jerome Powell addressed these concerns at a press conference in Washington, D.C., in July, noting that tariffs would likely “push up prices and weigh on economic activity” over the course of this year. He added, however, that the effects would depend on the “ultimate level” of tariffs, which have fluctuated frequently as the administration adjusts its trade policy.
Meanwhile, retail sales data released by the U.S. Census Bureau on August 15 painted a slightly more nuanced picture. Seasonally adjusted retail sales grew by 0.5% from June to July 2025, reaching $726.3 billion—a nearly 4% increase compared to July 2024. The Bureau also revised June’s retail sales growth upward, from 0.6% to 0.9%, bringing the total to $722.6 billion. These numbers suggest that, at least for now, American consumers are still opening their wallets, even as worries about inflation and tariffs mount.
Auto purchases, in particular, have been a bright spot. Spurred by looming tariffs, they led the retail sector’s sales growth in June and July, recovering from a lull in May. According to a recent Cox Automotive report, July new-vehicle purchases rose 6.6% year-over-year, thanks in part to surging fleet sales. Other sectors—such as furniture and home stores, food and beverage stores, pharmacy and drug stores, gas stations, and clothing stores—also saw sales rise last month compared to June.
However, not all segments fared equally well. Sales at food and drink service establishments and electronic and appliance stores dropped in July from the previous month, highlighting the uneven nature of the recovery. Jeffrey Roach, chief economist for LPL Financial, advised investors to keep a close eye on auto sales and other discretionary categories like restaurant spending to gauge the health of the consumer. “Recession risks remain low, but I think it’s wise for the Fed to shift to a more neutral stance and cut rates in coming meetings,” Roach said.
Chris Zaccarelli, chief investment officer for Northlight Asset Management, struck a cautiously optimistic tone. “As long as consumer spending holds up and companies are able to retain workers because of that robust spending, the flywheel can continue to spin, pushing corporate profits and stock prices higher,” he explained. “The market is expensive, inflation has been increasing and unemployment has been rising, and yet consumers are still spending, the economy is still growing, and the market is still rising. These aren’t the perfect conditions for a robust rally, but right now they are good enough for a slow grind higher—with the occasional pullback—on a path to a higher stock market by year end.”
Behind the scenes, however, inflationary pressures are building. July’s wholesale inflation numbers stunned analysts, with the Producer Price Index rising 0.9% month-over-month—the largest increase since early 2022 and far exceeding forecasts of about 0.2%. This sharp rise in wholesale prices raises concerns about future consumer price increases, especially as tariffs continue to work their way through the supply chain.
GDP data released in late July added another layer to the story, indicating average annualized growth of just 1.2% over the first half of 2025, down from a robust 2.8% in 2024. The slowdown, coupled with rising inflation expectations and labor market jitters, has left many Americans feeling unsure about the path ahead.
As policymakers, businesses, and households alike grapple with the effects of tariffs, shifting economic indicators, and political turbulence, the nation finds itself at a crossroads. The resilience of consumer spending and the labor market offer reasons for hope, but the risk of a prolonged downturn remains very real. How the coming months unfold will depend on the interplay of policy decisions, market forces, and, perhaps most importantly, the confidence of the American consumer.
