How quickly things can change. A few weeks ago, I reported that, back in December, Deloitte executives Anthony Waelter and Stephen Rogers were fairly sanguine about consumer spending. They wrote, “Spending intentions for housing remain elevated but have started to plateau. Meanwhile, spending intentions for a mix of other major purchase categories continue to increase, including leisure travel, clothing, and groceries.”[1] At the time, I cautioned, “Depending on how events unfold, this picture could change quickly — especially if a global trade war breaks out.”[2] I must admit, however, I didn’t expect the mood of consumers to change quite so quickly. Wall Street Journal reporters Rachel Wolfe and Joe Pinsker report, “The Trump bump in consumer confidence is already over. Tariff threats, stock market swings and rapidly reversing executive orders are causing Americans across the political spectrum to feel considerably more pessimistic about the economy than they did before President Trump took office.”[3]

What’s Happening

The Wall Street Journal is only one of many news outlets reporting the results of a University of Michigan survey, which found “consumer sentiment fell about 5% in [a] February survey of consumers.” Newsweek reports, “U.S. consumer sentiment has fallen to a seven-month low as inflation persists and President Donald Trump promotes various economic policies, including levying tariffs on key U.S. trading partners.”[4] If a loss of consumer confidence was not enough bad news, Wolfe and Pinsker report, “Expectations of inflation in the year ahead jumped from 3.3% in January to 4.3%, the second month in a row of large increases and highest reading since November 2023.” Joanne Hsu, a professor at the University of Michigan, told Wolfe and Pinsker, “It’s very rare to see a full percentage point jump in inflation expectations.”

Journalist Tobias Burns notes, “Consumer expectations for inflation popped to their highest levels in more than a year, threatening to become unanchored on the heels of strong economic performance in recent months.”[5] Burns reports that consumers aren’t the only people concerned about the economy. The Federal Reserve Board is also paying close attention. He explains, “At the most recent meeting of its rate-setting committee, the Fed paused on its rate cuts and expects to make only two quarter-point cuts this year. Economists saw strong payroll, wage, and labor force data in the January jobs report as bolstering the likelihood of a pause. ‘Job market data are likely to keep the Fed on hold with respect to any further rate cuts,’ Mike Fratantoni, economist with the Mortgage Bankers Association, said in a commentary.”

Why It’s Happening

Although there were many reasons Trump was re-elected to office, they included consumer dissatisfaction with inflation and high prices. That’s why, following the election, consumer confidence made a positive bump. Economist Deni Koenhemsi reports, “The index of consumer sentiment (ICS) in the United States has been generally moving up since the elections in November 2024. Putting the partisan divide aside, consumer sentiment tracked by Morning Consult daily, has increased from 96.4 on November 3, 2024 to 103.4 on January 26, 2025. … After the elections, consumers almost immediately grew more confident about their future personal finances as well as business conditions with their views on current personal finances and buying conditions following suit.”[6] She goes on to note, “This honeymoon period has appeared to end: Shortly after the inauguration of President Trump, Morning Consult’s daily consumer sentiment data began to dip. The decline has been precipitous and is on the path to erase the post-election boost. … Since the inauguration, economic news has generally been in line with market expectations, therefore the shift in sentiment could be partially attributed to the changing political environment.”

That “changing political environment” has created both turbulence and chaos. As Newsweek notes, “Trump has authorized dozens of executive orders, reversing some, and launching tariffs on close trading partners. A temporary pause has been placed on the tariffs he issued on Mexico and Canada, while a 10 percent tariff remains in effect on China. The tariffs are expected to heighten tensions between the nations and drive-up consumer prices on a range of goods.” Consumers had hoped that the new administration would, as Trump promised on the campaign trail, bring prices down. Instead, tariffs threaten to raise prices across the board. In addition, the administration’s immigration policy threatens to adversely affect the economy — especially in the food, housing, and hospitality sectors. Confronted with an uncertain future, consumers become very uncomfortable.

The University of Michigan survey and Morning Consult index are not the only indicators of souring consumer sentiment. The Conference Board, a global, nonprofit business think tank, also reported that consumer confidence declined in January. In a press release, Dana M. Peterson, chief economist at The Conference Board, stated, “All five components of the Index deteriorated but consumers’ assessments of the present situation experienced the largest decline. Notably, views of current labor market conditions fell for the first time since September, while assessments of business conditions weakened for the second month in a row.”[7]

Concluding Thoughts

With consumer sentiment changing so quickly, McKinsey & Company analysts observe, “Amid massive shifts in the consumer landscape, companies can’t afford to rely on yesterday’s consumer insights.”[8] They conclude, “In this consumer landscape — one in which standards, complexity, and stakes are all higher — leaders should understand the new nuances that define who the ‘next’ shoppers are, what they care about, and how they shop. These insights, which should then inform strategic category and channel investments, can lead to long-term, profitable growth and sustained competitive advantage.” Fortunately, AI-powered solutions, like the Enterra Consumer Insights Intelligence System™, can help brands and retailers stay on top of this volatile environment. This System allows clients to quantitatively uncover and logically understand the inter-relationships that lead to heightened consumer understanding, hyper-personalized product recommendations, and new product innovation. The Consumer Insights Intelligence System is part of the larger Enterra System of Intelligence®. This System ushers in a new era of AI-enabled management science by merging cutting-edge analytical techniques with a business’ data and knowledge to Sense, Think, Act, and Learn® on enterprise data to meet the changing needs of the market.

Footnotes
[1] Anthony Waelter and Stephen Rogers, “State of the US consumer: January 2025,” Deloitte, 17 January 2025.
[2] Stephen DeAngelis, “Will Strong Consumer Sales Continue in 2025?” Enterra Insights, 28 January 2025.
[3] Rachel Wolfe and Joe Pinsker, “The Mood of the American Consumer is Souring,” The Wall Street Journal, 7 February 2025.
[4] Staff, “US Consumer Sentiment Hits 7-Month Low After Trump Takes Office,” Newsweek, 7 February 2025.
[5] Tobias Burns, “Inflation expectations pop to highest level in a year,” The Hill, 7 February 2025.
[6] Deni Koenhemsi, “American Consumers’ Optimism Fades, What Does This Mean for Near-Term Consumer Spending?” Morning Consult, 6 February 2025.
[7] Staff, “Consumer Sentiment Drops Amid Concerns About Tariffs and Inflation,” PYMNTS, 7 February 2025.
[8] Christina Adams, Kari Alldredge, and Sajal Kohli, “State of the Consumer 2024: What’s now and what’s next,” McKinsey & Company, 10 June 2024.