With recession worries taking all the headlines last week, the latest University of Michigan consumer confidence survey reading on 14 March was hotly anticipated.
Not only did the reading fall short of expectations, plumbing a two year low of 57.9, but the survey also revealed a sharp rise in consumer inflation expectations to 4.9% over the next year from 4.3% in the prior month.
As a reminder February’s inflation reading according to the Federal Reserve’s favourite inflation measure, the core PCE (personal consumption expenditure) index was 2.5%.
More worryingly, long-term inflation expectations jumped 0.4% to 3.9%, the highest reading in more than three decades.
The survey’s director Joanne Hsu said consumer confidence weakened across all income categories, suggesting a broad slowdown. At the same time uncertainty around tariffs appears to be the cause behind rising inflation expectations.
Forty-eight percent of survey respondents spontaneously mentioned tariffs during interviews with the Michigan University.
‘Critically, these consumers generally expect tariffs to generate substantial upward pressure for inflation in the future,’ said Hsu.
The slowing consumer narrative was in focus again on 17 March after US retail sales for February came in weaker than expected and the prior month was revised down to mark its biggest drop since 2021.
While many retailers reported solid sales growth at the back end of 2024 their outlooks have generally been below analysts’ forecasts.
The latest example is sporting equipment and apparel group Dick’s Sporting Goods (DKS:NYSE) which gave (11 March) soft guidance after reporting its strongest holiday trading on record.
CEO Lauren Hobart said: ‘We definitely are feeling great about our consumer. We are just reflecting an appropriate level of caution given so much uncertainty out in the marketplace.’
More evidence of uncertainty impacting retail sales can be gleaned from work undertaken by consultancy RetailNext which revealed footfall in US stores declined 4.3% year-on-year in early March, extending declines seen at the turn of the year.
Tariff uncertainties are expected to have broader economic impacts including slower economic growth and higher inflation according to the latest (17 March) projections from the OECD (Organisation for Economic Co-operation and Development).
The OECD said: ‘Further fragmentation of the global economy is a key concern. Higher-than-expected inflation would prompt more restrictive monetary policy and could give rise to disruptive repricing in financial markets.’
Global growth is projected to slow this year and next, from 3.2% in 2024 to 3.1% and 3% in 2025 and 2026 respectively, GDP growth in the US is seen decelerating from 2.8% last year to 2.2% in 2025 and 1.6% next year.
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