US consumer confidence dives, posts biggest drop in 3.5 years

In February, consumer confidence in the US increased at its highest level in three and a half years, indicating further evidence that Americans were becoming concerned about the potential negative effects of President Donald Trump’s policies on the economy.

According to the Conference Board survey on Tuesday, “comments on the current administration and its policies predominated the responses.”

It followed surveys last week that revealed significant declines in consumer and business sentiment in February. In almost every survey of households and businesses, Trump has identified import taxes as the main problem or has already implemented or intends to.

According to economists, unprecedented layoffs of federal government employees were also putting a strain on consumers’ psyches, which they claimed threatened spending, the nation’s main engine.

“The outlook is becoming more and more pessimistic in America. No federal government has ever threatened to fire government employees in large numbers, and now that the situation is “scared out by” consumers, according to Christopher Rupkey, chief economist at FWDBONDS. Consumers staying at home could bring the economy to a halt in the first quarter of the year.

The Conference Board’s consumer confidence index dropped 7 points, the biggest decline since August 2021, to 98.3 this month. The index was only projected to fall, but only 102.5 according to Reuters polled economists. The index dropped to its lowest level since June 2024 as a result of its third consecutive monthly decline. It is now at the bottom of the range that has existed since 2022.

According to Stephanie Guichard, senior economist for global indicators at the Conference Board, “there was a sharp increase in the mentions of trade and tariffs, back to a level unseen since 2019.” “Most notably, comments on the current administration and its policies dominated the responses”.

Business and consumer sentiment soared following Trump’s November 5 victory on hopes for a less-stringent regulatory environment, tax cuts and low inflation. Trump, a Republican, has during his first month in office slapped an additional 10 percent tariff on Chinese imports. Up until March, imports from Mexico and Canada were subject to a 25% levy. Trump increased steel and aluminum imports by 25% this month.

Mass firings

Tariffs on automobiles, semiconductors and pharmaceutical imports are looming. At the same time, tens of thousands of federal government workers, mostly those on probation, have been fired by billionaire Elon Musk’s Department of Government Efficiency, or DOGE – an entity created by Trump.

According to the confidence data, US stocks dropped. The dollar eased against a basket of currencies. US Treasury yields slipped.

Although economists are not yet predicting a recession, they anticipate a lengthy period of moderately slow economic growth and high inflation. The Federal Reserve would find itself in a difficult position as a result. In January, the US central bank halted interest rate reductions while policymakers assessed the Trump administration’s policies’ impact on the economy.

Since September, the Fed has lowered its benchmark overnight interest rate by 100 basis points as part of its policy easing cycle. It hiked the policy rate by 5.25 percentage points in 2022 and 2023 to tame inflation.

Consumers ‘ average 12-month inflation expectations jumped to 6 percent, the highest since May 2023, from 5.2 percent in February.

The survey’s so-called labour market differential, derived from data on respondents ‘ views on whether jobs are plentiful or hard to get, declined to 17.1 from 19.4 last month.