Consumer Confidence Plummets Amid Tariff Uncertainty and Inflation Fears

Consumer confidence has nosedived in February, marking its steepest monthly decline in almost four years. The Conference Board's Consumer Confidence Index plunged to 98.3, significantly lower than the revised 105 reading in January and below economists' expectations of 102.5.

"This is the largest monthly decline since August 2021," said Stephanie Guichard, senior economist at the Conference Board. "It's the third consecutive month-on-month decline, bringing the Index to the bottom of the range that has prevailed since 2022."

The "Present Situation Index," measuring consumers' current assessment of business and labor market conditions, fell to 136.5 from 139 in January. The "Expectations Index," tracking consumers' short-term outlook for income, business, and labor market conditions, also declined to 72.9 from 82 last month. Historically, a reading below 80 in this category signals a possible recession within the year. This is the first time the index has fallen below that threshold since June 2024.

Meanwhile, average 12-month inflation expectations surged from 5.2% in January to 6% in February, reflecting growing concerns about tariff uncertainty and its potential impact on prices. "This increase likely stems from a combination of sticky inflation and the recent price jumps of household staples like eggs due to tariffs," explained Guichard.

President Donald Trump's revived tariff threats have weighed heavily on sentiment, particularly with the upcoming imposition of 25% tariffs on Canada and Mexico. 10% duties on China are already in effect, while global tariffs of 25% on steel and aluminum imports are expected to take effect on March 12. Trump has also hinted at additional duties on automobiles, semiconductors, and pharmaceuticals.

"Everybody is discussing the potential inflation impact of tariffs, and it's a major concern for consumers," Yelena Shulyatyeva, senior US economist at the Conference Board, told Yahoo Finance. Notably, the February decline in confidence was widespread across income groups, including the more affluent cohorts who have fueled much of recent consumer spending.

"This is a worry," Shulyatyeva said. "Consumer spending is heavily dependent on those at the high end of the income spectrum. If this slows down considerably, it could adversely affect the economy."

Eugenio Aleman, chief economist at Raymond James, notes the uncertainty surrounding whether this loss of confidence will translate into reduced economic growth. "The upcoming second estimate of gross domestic product for the fourth quarter will provide insights into this," he said. "However, the increase in inflation expectations and the growing discussion of tariff effects should serve as a wake-up call for the administration."