Key Points at a Glance:

  • Consumer confidence plunged 11% this month and inflation expectations soared to their highest level since 1981, driven mainly by escalating global trade war concerns, according to a University of Michigan survey released Friday, April 11.
  • Joanne Hsu, the survey's director, said in a statement that consumer sentiment has fallen more than 30% cumulatively since December, with "concerns over the trade war intensifying." She noted the decline is "broad-based and consistent across age, income, education, geographic region, and political affiliation."
  • "Consumers reported multiple warning signs that raise the risk of a recession: expectations for business conditions, personal finances, income, inflation, and the labor market all continued to deteriorate this month," Hsu said. The share of consumers expecting the unemployment rate to rise over the next 12 months reached its highest level since 2009.

In-Depth Analysis:

The survey concluded on April 8, before U.S. President Donald Trump announced a 90-day pause on reciprocal tariffs for nearly all U.S. trading partners. Trump maintained reciprocal tariffs on Chinese imports, as well as a 10% baseline tariff on dozens of countries announced earlier this month.

However, the trade war between the world's two largest economies has continued to escalate since Trump announced the pause. The U.S. said cumulative tariffs on Chinese imports have reached 145%, prompting Beijing to retaliate on Friday (April 11) by raising tariffs on all U.S. imports to 125%.

JPMorgan Chase CEO Jamie Dimon warned on Friday that global trade conflicts and other turmoil could cause damage to the United States.

"The economy is facing considerable turmoil (including geopolitical), where tax reform and deregulation could have positive effects, while tariffs and 'trade wars,' persistently sticky inflation, high fiscal deficits, and still-elevated asset prices and volatility could have negative effects," Dimon said in JPMorgan's first-quarter earnings report.

According to the University of Michigan survey, consumers expect inflation to rise to 6.7% over the next year, up 1.7 percentage points from last month. Long-term inflation expectations rose from 4.1% in March to 4.4% this month.

"In such turbulent and uncertain times, well-anchored inflation expectations are crucial to ensuring sustained price stability," New York Federal Reserve President John Williams said in a speech on Friday. The Fed's goal is to keep inflation at 2%.

Williams predicted tariffs would push inflation to between 3.5% and 4% this year.

Given "slower labor force growth due to reduced immigration, combined with the effects of uncertainty and tariffs," he expects GDP growth could slow to below 1% over the next year.

Additionally, Williams said the unemployment rate could rise to between 4.5% and 5%, up from its current 4.2%. Williams also serves as vice chair of the Federal Open Market Committee, the monetary policy-setting body.

"A pervasive sense of uncertainty is becoming increasingly evident. Consumer confidence has dropped sharply, and business confidence indicators have also weakened," he said.

"In highly uncertain times, consumers may delay major decisions such as buying a home or a car, and businesses may also postpone investments until the path ahead becomes clearer. And when households and businesses cut spending, economic growth slows," Williams added.

However, Wells Fargo economists believe that declining consumer confidence does not necessarily signal a pullback in spending.

"Lower optimism is not a positive signal for actual spending, but it alone won't hold households back," they said in a report on Friday.

These economists noted that since the pandemic, consumers have repeatedly defied indicators showing depressed sentiment and continued to spend. "U.S. consumers have shown remarkable resilience in recent years."