"American Consumers Show Growing Concern Over Economic Uncertainty and Inflation"

American consumers are becoming increasingly concerned about the economy. This unease is evident in various sentiment surveys, as the current administration seeks to reshape the country's trade relationships and inflation appears to be persisting.

The most recent indication of this trend comes from the Conference Board's Consumer Confidence Index for February, which dropped to 98.3. This marks the third consecutive month of decline and the largest monthly drop since August 2021, with expectations for inflation rising in the coming year. This shift aligns with the findings from the University of Michigan's consumer survey for February.

Homebuilders are also showing signs of concern, according to the National Association of Home Builders, and even small businesses, while still somewhat optimistic about deregulation and tax cuts, are growing uncertain about the economy's future. The National Federation of Independent Business reported that its Uncertainty Index rose to its third-highest level in January.

The souring economic sentiment in the U.S., largely driven by concerns about trade policies, represents a stark contrast to the brief optimism that followed the presidential election in November.

Stephanie Guichard, senior economist at the Conference Board, stated that "consumers have become more pessimistic about future business conditions and less optimistic about future income." For the Federal Reserve, it is essential that Americans maintain confidence that inflation will stabilize over time. Central bankers are keenly aware of how consumer perceptions of prices can become self-fulfilling; if people anticipate rising inflation, they may alter their spending behaviors accordingly.

Thus far, Federal Reserve officials have not sounded alarm bells about inflation expectations, although some have emphasized the importance of keeping them in check. If inflation does rise due to policies, "it may be appropriate to overlook or downplay a temporary increase in the price level if the impact on inflation is expected to be brief," said St. Louis Fed President Alberto Musalem. "However, a different monetary policy response could be warranted if inflation proves to be persistent or long-term inflation expectations rise."

"I would be particularly concerned if there were signs that inflation expectations were becoming unanchored," Musalem added.

Chicago Fed President Austan Goolsbee also commented on the issue, acknowledging that the uptick in inflation expectations reflected in the University of Michigan's survey was "not a great number," but noting that a single month's data was not enough to draw definitive conclusions.

Although sentiment surveys do not always predict actual spending patterns, the current climate of uncertainty could be influencing people's purchasing decisions. For instance, despite a sharp drop in consumer sentiment in June 2022, when inflation hit a four-decade high, Americans continued to spend. However, a new survey from Wells Fargo reveals that about three-quarters of 3,657 adults and 203 teens polled are planning to cut back on their spending due to economic uncertainty.

Michael Liersch, head of advice and planning at Wells Fargo, remarked, "Consumer behaviors are shifting. The value of the dollar and what it provides may no longer be as predictable, particularly for younger Americans."

The survey revealed that 82% of Gen Z adults and 79% of Millennials intend to reduce their spending in the coming months. Among the most significant price shocks reported by respondents were eating out, food delivery, gas prices, and tickets for concerts or sporting events.