Consumer confidence in the United States dropped significantly in February, signaling growing concerns about the economy. The Conference Board’s Consumer Confidence Index fell to 98.3, a nearly 7% decline from the previous month. This was the sharpest monthly drop since August 2021 and came in below the market expectation of 102.3.
One of the key components of the report, the Expectations Index, fell by 9.3 points to 72.9. This marks the first time since June 2024 that it has dropped below the level associated with recession risks. The survey showed that consumers are increasingly pessimistic about the future, particularly in terms of business conditions, employment prospects, and personal income growth.
Inflation and Trade Policies Contribute to Uncertainty
The decline in consumer sentiment coincides with rising concerns about inflation and trade policies. President Donald Trump recently confirmed that his administration will move forward with new tariffs on Canada and Mexico in March, following a brief delay in February. Many economists worry that these tariffs could push inflation higher, making it more difficult for the Federal Reserve to lower interest rates.
Inflation expectations among consumers have already increased. The 12-month inflation outlook jumped to 6%, up from 5.2% in January, well above the Federal Reserve’s 2% target. The rising cost of household essentials, including food staples such as eggs, has contributed to this growing concern.
According to Stephanie Guichard, a senior economist at the Conference Board, many survey respondents expressed frustration over economic uncertainty, with a sharp rise in mentions of tariffs and trade policies. She noted that consumer concerns over government policies are at their highest level since 2019.
Market Reaction and Future Economic Outlook
The financial markets reacted quickly to the weak consumer confidence report. Stock prices initially dipped, while Treasury yields fell sharply. The yield on the 10-year U.S. Treasury note dropped by nearly 10 basis points to 4.29%, reflecting investor concerns about slowing growth.
Treasury Secretary Scott Bessent acknowledged the challenges posed by inflation and slowing consumer sentiment. He attributed some of the economic instability to excessive government spending under the previous administration and emphasized the Trump administration’s commitment to tax cuts, deregulation, and tariffs to stimulate the economy.
Meanwhile, Jeffrey Roach, chief economist at LPL Financial, warned that consumers may begin shifting their spending habits in anticipation of rising prices. He suggested that the uncertainty around tariffs could lead consumers to accelerate purchases before higher costs take effect, potentially creating short-term demand surges.
Despite these concerns, other economic indicators continue to show resilience. The labor market remains strong, and overall GDP growth has not yet shown significant signs of contraction. However, if consumer confidence continues to weaken, spending may slow, impacting overall economic momentum in the coming months.
Economists and market participants will closely monitor upcoming economic data, including employment reports, inflation figures, and trade developments, to assess whether the current decline in consumer confidence is a temporary dip or a sign of deeper economic troubles ahead.
