Why Consumer Confidence Remains Low Despite Tariff Adjustments

Essential Insights

• The Michigan Consumer Sentiment Survey revealed an unexpected drop in May, reflecting ongoing concerns about tariffs and their impact on the economy.
• The survey’s preliminary May results capture the period following the U.S. administration’s temporary tariff pause on certain countries in April.
• However, these results only account for a brief window after the recent U.S.-China trade agreement announcement.

Consumer confidence has declined for the fifth consecutive month, with recent tariff relief measures failing to boost public optimism.

The Michigan Consumer Sentiment Index fell to 50.8 in May, marking the second-lowest reading in the survey’s history. Inflation expectations surged to 7.3% for the coming year—the highest in over four decades—indicating growing worries about rising prices.

Economists had anticipated a modest improvement in sentiment due to positive trade negotiation developments. Yet, concerns about rising import taxes continue to weigh heavily on consumers.

Survey Timing Limits Reflection of Trade Deal Impact

The May survey results include the period after the administration’s 90-day tariff suspension announced on April 9 but only encompass two days following the May 12 U.S.-China trade deal announcement.

"While some survey indicators showed minor improvements following the temporary tariff reductions on China, these changes were insufficient to shift the overall sentiment—consumers remain cautious about economic prospects," explained Joanne Hsu, Director of the Michigan Survey of Consumers.

Consumer sentiment surveys highlight anxiety over the economic trajectory amid heightened tariffs. However, this apprehension has yet to significantly affect tangible economic indicators like retail sales.

"If consumer sentiment alone dictated spending, we would expect a sharp economic slowdown, but retail sales experienced a modest increase last month," noted Robert Frick, Corporate Economist at Navy Federal Credit Union. "This suggests consumers are highly sensitive; any downturn in employment or income could quickly dampen spending and potentially trigger a recession."

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