Consumer confidence plummets to lowest level since January 2021

Washington (CNN) — America’s economic mood continues to deteriorate as President Donald Trump carries on with his sweeping economic agenda.

Consumer confidence slid 7.2 points this month to a reading of 92.9, the Conference Board said Tuesday in its latest survey, reaching its lowest level since January 2021 and extending a decline that began in December, after the US presidential election. March’s decline was similar to February’s, underscoring the growing pessimism among US consumers.

Not only are Americans expecting higher inflation this year, but more of them are also predicting that the economy will slip into a recession, the Conference Board survey showed. That toxic combination of weakening growth and accelerating inflation resembles “stagflation,” and Federal Reserve officials also see the US economy trending in that direction.

Americans’ expectations “for income, business, and labor market conditions” in the coming year fell sharply this month, the survey showed, declining 9.6 points to 65.2, the lowest level in 12 years. Meanwhile, the share of respondents expecting a recession in the next 12 months held steady in March at a nine-month high.

Trump’s trade spat with foreign countries, a key tenet of his economic agenda, has been both baffling and contentious: Earlier this month after imposing 25% tariffs on Mexico and Canada, those duties were quickly delayed for another month after complaints from business leaders; then, after the European Union retaliated to Trump’s metal tariffs, the president continued to up the ante by threatening a mega 200% tariff on European alcohol.

And upcoming tariffs aimed at matching those that foreign countries impose on the United States — so-called reciprocal tariffs slated for April 2 — might be watered down.

That frenetic back-and-forth has evoked high levels of uncertainty among American consumers, businesses and investors, which is making it difficult to plan ahead, according to various surveys. It’s also stoking fears that the economy could be barreling toward stagflation.

Stephen Miran, chair of Trump’s Council of Economic Advisers, said he isn’t concerned by the drop in consumer confidence. “Folks often let their political views influence their views of the economy, which tends to manifest in the confidence data,” Miran said Tuesday in a CNBC interview.

In his view, soft data such as the consumer confidence survey is less telling about the state of the economy compared to hard data like jobs reports, which paint a somewhat better picture.

Sarah House, senior economist at Wells Fargo, said soft data can manifest in hard data, but that remains to be seen.

“Obviously we’ve seen some wobbles in the soft data, particularly the consumer surveys, but for it to become concerning, there has to be some pass-through into the hard data, in terms of growth and the labor market,” she told CNN.

Fewer rate cuts this year?

The Trump administration’s rapid-fire policy changes have also been perplexing for the Fed, which is tasked with managing borrowing costs. In addition to tariffs, the administration is also carrying out mass deportations and slashing regulations.

Central bankers have said recently that they’re adopting a wait-and-see approach with interest rates, holding them steady as they wait for some clarity on how the US economy is responding to Trump’s policies.

“The (Fed) can react to new developments by holding at the current rate for some time as we closely monitor incoming data and the cumulative effects of new policies,” Fed Governor Adriana Kugler said Tuesday at an event hosted by the US Hispanic Chamber of Commerce.

Most Fed officials, including Fed Chair Jerome Powell, have said that what matters is the “net effect” of Trump’s policies on growth, hiring and inflation, which are scant so far.

But there have been some signs of economic weakness already, even before Trump’s policies demonstrate any shifts in the economy. A real-time forecast of economic growth by the Atlanta Fed shows the economy contracting in the current quarter, slowing sharply from late last year. That’s largely due to the effects of unusually harsh cold weather in January on consumer spending and industrial activity.

America’s labor market, however, remains a sturdy pillar of strength for the US economy, which should bode well for spending. In February, unemployment stood at a low 4.1% as employers added a solid 151,000 jobs.

The Fed is also getting a concerning signal from the recent run-up in Americans’ expectations for inflation in the short run and in the long run. After the Fed’s latest monetary policy meeting earlier this month, Powell said long-run inflation expectations remain “mostly well anchored.”

Overall, economic data currently suggests that the economy doesn’t urgently need any relief from the Fed in the form of rate cuts, nor that rate hikes are needed to tamp down inflation.

“I moved to one (rate cut for this year) mainly because I think we’re going to see inflation be very bumpy and not move dramatically and in a clear way to the 2% target,” Atlanta Fed President Raphael Bostic told Bloomberg Monday. “Because that’s being pushed back, I think the appropriate path for policy is also going to have to be pushed back.”

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