Consumer confidence fell to a two-year low in March, which was not a big surprise given the volatility caused by tariffs and government layoffs. The headline index dropped to 92.9, slightly below our forecast of 93.3, the Conference Board reported on Tuesday.
Concerns over tariffs and their impact on inflation are evident in the survey, which shows that median inflation expectations for the next 12 months rose to 5.1%—the highest since May 2023.
The risk of slower growth and fewer jobs because of layoffs across the federal government kept the labor differential index—a proxy for the unemployment rate and job gains—at a five-month low in March.
But the bigger question is whether these pessimistic consumer responses will translate into reduced spending.
According to the survey, the results are mixed. Fewer consumers plan to buy a new or used car in the next six months, but more are planning to purchase new homes, refrigerators and televisions. The decline in spending plans for certain categories does not seem to match the significant drop in the headline sentiment index.
This aligns with our forecast, which points to a rebound in spending in February and March. Looking beyond that, however, it’s difficult to predict overall consumer spending—especially if tariffs on Canadian and Mexican goods take effect in April.
The impact on spending would most likely be negative if tariffs are implemented, but whether consumers will be able to absorb the resulting price increases remains an open question.
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