A recent survey reveals that two-thirds of US consumers anticipate an increase in unemployment over the next year, marking the highest level since 2009. This heightened concern comes amidst growing worries about inflation and an impending announcement from President Donald Trump regarding extensive tariffs.
Consumer confidence took a sharp 12% plunge this month, according to the University of Michigan’s latest survey released on Friday. The decline was slightly steeper than initial estimates, with respondents attributing their unease to the unpredictable nature of Trump’s trade war.
Joanne Hsu, the director of the survey, highlighted the prevailing anxieties among consumers, stating, “Consumers remain apprehensive about the potential impact of ongoing economic policy changes. A notable finding is that two-thirds of consumers anticipate a rise in unemployment in the upcoming year, the highest level recorded since 2009.”
In an upcoming announcement, Trump is expected to introduce reciprocal tariffs to match those imposed by other countries on the US, a move he has dubbed as “the big one.” Recently, Trump escalated the trade war by imposing 25% tariffs on all car imports effective April 3, in addition to existing tariffs on metals and China.
The survey’s “expectations” index, reflecting consumers’ economic outlook, plummeted by 18% and has now declined by over 30% since November 2024. Notably, both Democrats and Republicans shared a pessimistic outlook, expressing concerns about personal finances, business conditions, unemployment, and inflation.
Expectations for future inflation rose to 5% this month, the highest level since November 2022, while long-term inflation expectations surged to 4.1%, the highest since February 1993. Market strategist Art Hogan noted the impact of the current trade war on consumer sentiment and economic expectations.
The Federal Reserve faces a dilemma as it monitors inflation expectations, which could influence consumer behavior and spending patterns. St. Louis Fed President Alberto Musalem emphasized the importance of anchoring inflation expectations to prevent economic instability.
As uncertainties persist regarding unemployment and inflation, the Fed remains vigilant in its efforts to navigate the economic landscape and maintain stability.
The Federal Reserve faces a dilemma with regards to its dual mandate of promoting full employment and stabilizing prices. With recent data showing a rebound in consumer spending but concerns over inflation and economic weakness, the possibility of further rate cuts is uncertain. If the economy weakens more than expected and unemployment rises, the Fed may consider lowering borrowing costs. Consumer spending, which makes up about 70% of economic output, showed signs of improvement in February after a decline in January, but concerns remain about inflation trends and consumer sentiment. Senior economist Lydia Boussour highlighted consumer apprehension amid inflation worries and rising job insecurity.
