US Consumer Sentiment Declines Amid Unemployment and Tariff Concerns

In January, consumer sentiment in the US fell for the first time in six months, driven by worries over unemployment and potential inflation due to tariffs. The University of Michigan's final January sentiment index dropped to a three-month low of 71.1 from 74 in December. This decline included the weakest confidence among Democratic voters since August 2020.

Consumers now anticipate prices to rise 3.2% annually over the next five to 10 years, compared to 3% in December. They expect costs to increase 3.3% over the next year, the highest since May. Economists caution that tariffs could exacerbate price hikes, negatively impacting consumer sentiment and demand. The Trump administration anticipates cheaper energy to mitigate price increases.

Consumers indicated pre-buying to avoid future price increases. While the labor market remains strong, finding employment has taken longer for unemployed Americans. Additionally, Trump's promise to reduce the federal workforce could affect areas with high concentrations of government employees.

"Despite stronger reported incomes, unemployment concerns intensified; around 47% of consumers anticipate rising unemployment in the coming year, the highest since the pandemic recession," said Joanne Hsu, survey director.

The current conditions index dropped from 75.1 in December to 74, and the expectations index fell to a six-month low of 69.3. Consumers' financial outlooks reached their lowest point in five months. Durable goods purchasing conditions marginally improved, but the percentage of respondents considering it an unfavorable time to buy a home remained high.

Separately, the resale market experienced its weakest year in almost three decades. The National Association of Realtors reported 4.06 million existing homes sold in 2024, the lowest number since 1995.

Post Trump's election in November, consumer sentiment remained politically driven. Democrats have become more pessimistic, while Republican sentiment surged to its highest since October 2020. Among independents, sentiment softened.

Meanwhile, another report suggests a slight slowdown in business activity growth, although businesses remain optimistic. (Adds graphic and existing-home sales data)