Potential impact of trade war on jobs and inflation sends US consumer sentiment plunging

WASHINGTON (AP) — Consumer sentiment fell sharply in April, the fourth consecutive month of declines, as an intensifying trade war fueled anxiety over American jobs and rising inflation.

The University of Michigan’s closely watched consumer sentiment index, released Friday, fell 11% to 50.8, the lowest since the depths of the pandemic.

The decline was “pervasive and unanimous across age, income, education, geographic region, and political affiliation,” said Joanne Hsu, director of the survey.

Customers shop refrigerators at a retail store in Glenview, Ill., Thursday, April 3, 2025. (AP Photo/Nam Y. Huh)

The share of respondents expecting unemployment to rise in the coming months increased for the fifth straight month and is now the highest since 2009, during the Great Recession.

And Americans now expect long-term inflation to reach 4.4%, up from 4.1% last month, a move that may be of particular concern for the U.S. Federal Reserve. The Fed pays close attention to inflation expectations, because they can become self-fulfilling. If people expect prices to rise, they often take steps that can push up prices, such as accelerating purchases or seeking higher wages.

Americans’ inflation expectations over the next five years are now at the highest since 1991, according to Capital Economics, a forecasting firm.

“Households appear to have come to the same conclusion as markets: the tariffs will do lasting damage to the US economy,” Harry Chambers, assistant economist at Capital Economics, said in an email.

Consumer sentiment remains sharply divided by party, with the index for Democrats at 34.1 and Republicans at 81.9. Yet both recorded steep drops in April, with sentiment among Republicans down from 87.4 last month.

Sentiment among independents plunged to 46.8 from 55.7, and is sharply below its post-election peak of 70.2.

Those inflation expectations have now jumped for several months. At a news conference last month, Fed Chair Jerome Powell said the University of Michigan’s inflation expectations measure was an “outlier.” Market-based measures of inflation expectations, based on inflation-adjusted Treasury securities, have remained low, near the Fed’s 2% target.

Typically, falling sentiment suggests that Americans will cut back on spending, though in recent years consumers have at times kept spending despite the gloom. Yet the fact that worries about employment are rising could lead to more caution by consumers.

“This lack of labor market confidence lies in sharp contrast to the past several years, when robust spending was supported primarily by strong labor markets and incomes,” Hsu said.