How Shifting Consumer Confidence Could Shape Economic Trends in 2025

Essential Insights

• Consumers are growing increasingly cautious about their financial outlook as tariff discussions intensify.
• The New York Federal Reserve's recent survey highlights a rise in inflation expectations as households brace for tariff impacts.
• Experts warn that declining consumer confidence may slow down economic expansion due to reduced retail sales and spending.

Consumer expenditure has been a cornerstone of the economy's rebound post-pandemic, yet escalating cost concerns threaten to dampen this optimism.

According to the New York Federal Reserve's February consumer survey, inflation expectations rose slightly to 3.1% over the next year, signaling growing apprehension among households.

This trend reflects a broader decline in consumer sentiment linked to tariff implementations, posing potential challenges for economic stability.

Nationwide's Chief Economist Kathy Bostjancic notes, "Falling confidence may prompt businesses to reduce or postpone investments and hiring, while consumers might delay purchases, leading to increased volatility in financial markets."

Impact of Consumer Sentiment on Economic Growth

Consumer spending constitutes approximately 70% of the GDP, making it a critical driver of economic performance. Despite inflation and interest rate hikes, consumer momentum remained strong through much of 2024.

However, data suggests that even before tariff measures were enacted, consumers were becoming more conservative with their spending. If this cautious behavior persists, it could lead to a slowdown in economic growth.

BMO Capital Markets' Chief Economist Douglas Porter predicts first-quarter GDP growth could slow to 1%, down from 2.3% in the previous quarter, influenced by tariff-related uncertainties.

Bostjancic adds, "The economic slowdown partly stems from diminished confidence among businesses, consumers, and investors, as tariffs are perceived more as negotiation tactics than actual measures."

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