American consumers are feeling less cheerful about the economy. A key measure of consumer confidence saw a significant drop last month, surprising economists and reflecting growing jitters over trade conflicts and global instability.
According to data released by the Conference Board, the consumer confidence index fell to a reading of 93 in June. This represents a notable 5.4-point decline from the previous month and erased nearly half of May’s gains. The dip in sentiment wasn’t isolated, affecting consumers across the political spectrum, though the drop was most pronounced among Republicans surveyed.
This downturn stands in contrast to the modest one-point improvement that economists polled by FactSet had anticipated.
What’s Behind the Shifting Sentiment?
Just a month prior, consumers had experienced a brief uplift in optimism following an agreement between the United States and China aimed at reducing substantial tariffs. However, that positive feeling proved fleeting. The latest survey indicates that mounting uncertainty surrounding President Donald Trump’s economic policies and rising tensions in the Middle East are contributing to a less bullish outlook on the U.S. economy’s future.
While geopolitical events and social unrest saw a slight uptick in mentions among consumers, they remained lower on the list of concerns compared to the impact of tariffs. Stephanie Guichard, a senior economist overseeing global indicators at the Conference Board, noted that tariffs were “frequently associated with concerns about their negative impacts on the economy and prices.”
Consumers Brace for Higher Prices, Turn Cautious
The apprehension around tariffs and their potential to inflate prices is leading to more cautious spending habits. “As we wait to see the full impact of tariffs on prices, this uncertain sentiment could trigger reduced consumer spending,” commented Elizabeth Renter, a senior economist at NerdWallet. She explained that it’s difficult for consumers to budget effectively when they can’t be sure how much everyday items, like groceries, will cost in the coming months.
While headline inflation data hasn’t yet fully captured the effect of higher tariffs, Federal Reserve Chair Jerome Powell recently pointed out that prices for specific items, such as electronics, have already increased. Echoing this, the Conference Board survey revealed that more consumers are postponing planned purchases of electronics and even homes. Despite this caution, purchases of other major items like cars and appliances have held steady.
Adding to the conservative mood, the percentage of consumers anticipating a recession within the next year rose slightly last month. Optimism regarding future job opportunities, personal income growth, and overall business conditions also weakened.
Heather Long, chief economist at Navy Federal Credit Union, described the current environment as an “‘abundance of caution economy.'” She suggested that this hesitation is understandable, leading consumers to “sit on the sidelines” and only commit to significant purchases like homes, cars, or appliances if they are absolutely essential.
