US consumers have been feeling morose this year. A treasure trove of surveys has indicated they expect high inflation, slowing economic growth, and job losses. Why? Tariffs. Since returning to the White House in January, President Donald Trump has imposed levies on the world. This strategy has ignited a volatility in the financial markets not seen since the pandemic and has forced the public to worry about the economy’s health. Now that the White House has adopted a softer trade stance, households and businesses have expressed relief, thinking that the erratic ordeal is almost over.
Are US Consumers Turning Confident?
The Conference Board's May Consumer Confidence Index soared 12.3 points to 98, the sharpest one-month gain in four years. This also surpassed market estimates of 86 and snapped the five-month losing streak. Other sentiment indicators, including the present situation index and the expectations index, also rebounded. The widely watched survey of US consumers spotlighted improving views of stocks, jobs, and inflation.
Survey officials noted that the improvement was broad-based as all ages, income brackets, and political affiliations became more optimistic about the broader economic landscape.
Stephanie Guichard, the Conference Board’s senior economist for global indicators, says a bulk of the positive sentiment had to do with the United States and China agreeing to a 90-day tariff pause earlier this month. “The rebound was already visible before the May 12 US-China trade deal but gained momentum afterwards," she said.
The University of Michigan will release its final May Consumer Sentiment Index reading on May 30. Whether this will show a much-needed boost in the public's outlook will be crucial in determining if the soft data are translating into the hard data. So far, the US labor market remains intact; tariff-driven inflation has yet to rear its ugly head, and a closer examination of the first-quarter GDP report suggests that levies did not significantly harm the world’s largest economy.
Perhaps the panic on Wall Street and in the press influenced and fueled outlandish predictions in the public town square, such as an annual inflation rate of over 7% in the coming year. Of course, this does not mean the United States is cleared for landing anytime soon.
Warning: Recession Needed
Banks, independent economists, and media outlets have either canceled or lowered their recession calls. However, what Trump and Treasury Secretary Scott Bessent are trying to achieve might require an economic downturn after all.
Bessent, a Wall Street billionaire hedge fund manager, has been quite clear: He is squarely focused on the benchmark 10-year Treasury yield rather than the Federal Reserve. This is the chief tracker for mortgages, auto loans, and federal government borrowing. As Liberty Nation News has reported, it has wildly fluctuated this year and remains elevated at around 4.5%. Additionally, the 20- and 30-year Treasury yields have exceeded the 5% mark.
While yields on US government bonds tanked in the immediate aftermath of the April 2 Liberation Day announcement, they spiked on many occasions over the last two months. The latest incident occurred last week when the Treasury Department reported an abysmally poor performance in the 20-year bond auction, which sent yields soaring. This came shortly after Moody’s downgraded the US long-term credit rating.
Bond prices and yields trade inversely. In other words, when yields fall, there is less demand for US government debt. Considering the deteriorating outlook for Uncle Sam’s fiscal health, investors – both at home and abroad – have a smaller appetite for Washington’s tsunami of IOUs. This makes servicing the debt more expensive in the nation’s capital, forcing the government to print more money or tax its citizens more than it has already done for the last several decades.
When the president threatened a 50% tariff on the European Union – which Trump backtracked two days later – there was little reaction in stocks or yields by the end of the May 23 trading session. Therefore, if erratic policy adjustments are no longer enough to crash the Treasury market, what will be enough to flood this corner of global financial markets with red ink? A recession, perhaps.
Back-to-back quarters of negative economic growth would then refuel declining confidence and sentiment among US consumers. However, in theory, it would lower interest payments and make it more affordable to purchase a home. Then again, it might reaffirm market participants’ doom-and-gloom prognostications surrounding the nation’s future. It is a delicate balancing act.
Happy Consumers, Happy Life
In economics, it is always more suitable to assess long-term trends rather than one-and-done developments. This has never been more apparent than over the past year, be it last summer’s Sahm Rule trigger on recession or the spring’s Liberation Day. No one can blame US consumers for being in a state of panic if they watch CNN, observe what the experts are saying, and draw their own conclusions. Will a rebound in consumer confidence show up in upcoming data, such as the May retail sales report or the second-quarter GDP? Fasten your seatbelts – it’s going to be a bumpy year.
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