March 19, 2025
US Consumer Sentiment Hits Lowest Point Since 2022 Due to Tariff Concerns: How Will Consumers React?
The state of the American consumer’s health appears to be in flux, largely due to economic uncertainty and policy direction initiated by President Donald Trump in the early days of his second term. According to CNBC, the University of Michigan Survey of Consumers posted a March reading of 57.9, which represents a 10.5% decline from February and also fell short of the Dow Jones consensus estimate of 63.2. This reading signifies the lowest measured consumer sentiment since November 2022 and reflects a significant 27.1% drop from the reading taken a year ago.
The overall lowered sentiment among American consumers appears to have crossed party lines, at least in part. “Many consumers cited the high level of uncertainty around policy and other economic factors; frequent gyrations in economic policies make it very difficult for consumers to plan for the future, regardless of one’s policy preferences,” stated Joanne Hsu, the survey’s director. This indicates that the economic landscape, shaped over recent months by tariffs and policy shifts, has left many feeling uneasy.
Interestingly, consumers from all political affiliations reported weakened confidence, but the downturn was felt to varying degrees. “Consumers from all three political affiliations are in agreement that the outlook has weakened since February,” Hsu noted. Republicans, who previously felt bolstered by favorable elections, recorded a sizable 10% decline in their expectations index in March. Democrats suffered a more pronounced 24% drop, while Independents saw a sentiment decrease of 12%.
Worries regarding inflation have also been exacerbated by ongoing tariff concerns and shifting economic policies from Trump’s administration. The one-year outlook for inflation has trended upward to 4.9%, marking the highest reading since November 2022, and shows a 0.6% increase when compared to February's number. The five-year outlook jumped by 0.4% to rest at 3.9%, the highest measurement since February 1993.
Pantheon Macroeconomics Chief Economist Samuel Tombs expressed his thoughts on the report in unequivocal terms. “This is a horrific report. Elevated economic policy uncertainty and the sharp drop in stock prices have greatly undermined consumer confidence,” he remarked, as reported by Retail Dive.
Tombs predicted that year-over-year growth in consumption for the first quarter of 2025 would decline to 1.5% from the previous rate of 3.2% observed in Q4. He warned that the March sentiment level suggests even slower growth, projecting a mere 0.5%. “The March level [of consumer sentiment] alone points to even slower growth,” he concluded.
This decline in consumer sentiment also aligns with trends observed in other recent reports. A dip in consumer spending and confidence was noted in February 2025 by both the National Retail Federation (NRF) and the University of Michigan’s Index of Consumer Sentiment, leading retail and logistics experts to caution industry stakeholders to brace for a potential economic contraction. NRF President and CEO Matthew Shaw attributed the decline in consumer spending to harsh winter weather, rising unemployment concerns, and the uncertainty surrounding policy changes.
While overall inflation showed a slower rate of 3% in January 2025 according to the Consumer Price Index, year-over-year inflation was recorded at 2.8% in February 2025. The University of Michigan Index also reflected rising fears among consumers, specifically related to tariffs and the overall economic direction. According to Hsu, these fears are leading to substantial uncertainty, particularly influenced by ongoing shifts in economic policy by the new administration.
The durables sector—a key economic indicator which encompasses expensive items like automobiles and machinery—observed a notable 19% plunge in buying conditions during February 2025. This reflects a lack of consumer confidence since durable goods are essentials in households, and less spending on these items suggests individuals are feeling financial pressure.
In mid-March 2025, the University of Michigan revealed a sharp decrease in consumer sentiment and expectations compared to their February results. Consumer sentiment fell 11% since February, continuing a troubling trend over the last three months, during which sentiment has dropped 22% from December 2024.
The University of Michigan’s findings highlighted that expectations had declined most significantly among Democrats at 24%, Independents at 12%, and Republicans at 10%. Moreover, both short-term and long-run inflation expectations reached their highest increase since November 2022 and February 1993 respectively.
The university is set to release the final survey results for March on March 28, 2025, which will shed further light on consumer sentiment trends. As the economic landscape continues to shift, questions remain about whether consumer sentiment will improve or further decline as uncertainties loom around tariffs and ongoing policy changes.
The debate about consumer confidence and spending continues to spark discussions amongst economists, consumers, and policymakers alike. How consumers react to these developments may shape retail strategies and economic policies moving forward.
