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Tariff Trash Talk Chills Consumer Confidence

Tariff Trash Talk

Tariff trash talk for imports from Mexico is having a major impact on American consumer confidence. All consumer confidence indices for May showed substantial improvements in consumer assessment of both current and future economic expectations. However, the Trump Mexico tariff threat completely eroded the consumer confidence gains of May.

Americans were already rattled by the 25% tariffs, on half of all Chinese imports, set to pass through to consumers this fall. Additionally, slowing growth in U.S. employment is producing more uncertainty and concern.

American Dilemma

Therefore, Americans are facing the dilemma of wanting to buy large household appliances before prices take off, while concerned if they will be able to handle more credit for such purchases if the jobs market shrinks.

The preliminary June Survey of Consumers, by the University of Michigan, reports its Index of Consumer Sentiment (overall) dropped more than 2% from May. The Index of Current Economic Conditions is now down more than 3% from one-year ago and the Index of Consumer Expectations declined more than 5% from June 2018.

University of Michigan Chief Economist Richard Curtin says
consumers anticipate an average long-term inflation rate of just 2.2% in June, the lowest rate the surveys have recorded since the question was introduced forty years ago. The sole component of the Sentiment Index that improved in early June was buying plans for large household durables. That improvement, however, was due to consumers favoring tariff induced buy-in-advance price rationales. Overall, the data indicate that real personal consumption expenditures will advance by 2.5% in the year ahead.

May Boost Unboosted

The Conference Board Consumer Confidence Index improved in May, following an increase in April. The Present Situation Index – based on consumers’ assessment of current business and labor market conditions – increased from 169.0 to 175.2. The Expectations Index – based on consumers’ short-term outlook for income, business and labor market conditions – increased from 102.7 last month to 106.6 this month. Consumers stating business conditions are “good” increased from 37.6% to 38.3%, while those saying business conditions are “bad” decreased from 11.3% to 10.2%.

After reaching its highest level in 17 years, consumer sentiment among Floridians plummeted 5.3 points in May to 96.4 from a revised figure of 101.7 in April. The last time consumer sentiment dropped more than five points was four years ago, in May 2015.

According to University of Florida Consumer Sentiment Index, released today for May, all five components of its index declined. Opinions of personal finances now, compared with a year ago, decreased 9 points from 97.5 to 88.5, the steepest decline in May’s reading.

Recession Talk

CardTrak, CardData and CardFlash Senior Analyst Robert McKinley says all of the data continue to point to an economic unraveling within the next two years. There continues to be growing pessimism among economists and investors the recovery may be nearing an end. This message is now making its way to consumers and showing up in credit card data. The recent Trump tariff trash talk regarding Mexico might trump the Trump Shutdown as the most hurtful for 2019.

The Bureau of Economic and Business Research notes even though the U.S. economy has been booming, it will become the longest expansion on record in July.