EconoFACTS

February 25, 2025 | 10:36

Americans Are Becoming Increasingly Worried

Economist

Jennifer Lee

Senior Economist and Managing Director
Economics

Jennifer has been wi... (Read more)

Jennifer Lee

Senior Economist and Managing Director
Economics

Jennifer has been wi... (Read more)

Americans are feeling a little more nervous about how things are playing out these days...

... and it is starting to really show up in some of the data. Last week, it was the U of Michigan survey and the startling results on inflation expectations. For those who need a reminder: the expected inflation rate in 5 years rose to 3.5% in February from 3.2% in January. That was revised up from the preliminary estimate of 3.3% for February and the highest since April 1995!

Today, it was the Conference Board's turn. The headline consumer confidence index took a drop to an 8-month low of 98.3 in February, which was worse than expected. In fact, the 7.0 pt hit was the third decline in a row, led by expectations (-9.3 pts to an 8-month low of 72.9), as well as the present situation (-3.4 pts to a 4-month low of 136.5). Note that the expectations fall was the largest since August 2021. (That month, we were talking about inflation heading higher ("transitory"), supplier delivery delays, and orders to wear a mask/don't wear a mask.)

I digress.

This survey is more about jobs, although these days, I'd venture to say that everyone is thinking of jobs, inflation, stocks, etc. In any event, there wasn't much change in the share of survey respondents who said that jobs were plentiful but more raised their hands when asked "are jobs hard to get"?. This narrowed the labor differential a little, which suggests that (and it has been wrong before!!!) the jobless rate could be under a bit of pressure for the month. Maybe it was the "Pack your boxes, you're no longer working here.... never mind. Stay for a while." but it would be too soon to start having an impact on the jobs figures themselves.

BUT inflation expectations jumped to a 21-month high of 6.0% in February from 5.2% in the prior month, the biggest month-to-month increase in over three years. The Fed normally looks at medium-term inflation expectations (5-year) but this component (12-month outlook) adds on to what we already saw from the U of M. And, according to the Conference Board, there were more references to sticky inflation, as well as tariffs and trade, "back to a level unseen since 2019". This is impacting buying plans (for cars and other big-ticket items).

At roughly the same time of this release, TS Bessent was on the wires saying that "tariffs are an essential component in strategy" and they "can increase U.S. industrial capacity". Perhaps, but most analysts believe they also will boost prices and could curb consumer spending, which in turn, could slow U.S. economic growth. Not to mention the slowdown in growth of the country's trading partners.

Few benefit in the long run.....

Table 1 - United States — Consumer Confidence Index

(1985 = 100)

Source: BMO Economics, Haver Analytics