Consumer Says: Souring sentiment post-inauguration and upside inflation risks

What's new in the economy?

Job growth slowed in January, while the unemployment rate decreased again to 4.0%, its lowest level since May 2024. Last month’s numbers reinforce the current trend in the labor market – those who already have a job look increasingly unlikely to lose it or leave it, and those who don’t have a job have been less likely to find one quickly.

Strong labor market numbers and stalling progress on inflation led the Federal Reserve to hold rates steady in their January meeting, with Fed officials signaling no hurry to cut rates again any time soon. The market is pricing in just one more rate cut in 2025.

Inflation, as measured by the Consumer Price Index, was 3.0% year-over-year in January, slightly up from December. Although price growth continues to be propped up by services and housing inflation, tariffs and growing supply chain pressures threaten to push up goods prices as well.

Consumer says...

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Consumer sentiment soured in the days following inauguration

After the elections, consumers almost immediately grew more confident about their future personal finances as well as business conditions with their views on current personal finances and buying conditions following suit, albeit with a slight delay. However, this honeymoon period has appeared to end: Shortly after the inauguration of President Trump, Morning Consult’s daily consumer sentiment data began to dip.

The most recent dip in sentiment came mostly from Democrats, and somewhat from Independents. On the other hand, Republican consumer sentiment continued to soar higher following inauguration, highlighting how partisan politics colors consumers’ view of the economy. 

Tariffs threaten to exacerbate already reheating supply pressures

Morning Consult’s supply chain indexes showed an upward momentum recently, posing an additional risk for upside price pressure on goods. In January, the delivery delays index, which measures online orders’ delivery speed, reached its highest level in two years. Increase in stockouts, as measured by the purchasing difficulty index, also increased last month, largely due to groceries (and likely eggs). 

Amid this reheating of supply chain pressures, tariffs threaten to exacerbate the problem. Supply chain blockages played a large role in the run up of prices in 2022 – a massive wave of goods demand in combination with pandemic closures, chip shortages, geopolitical supply blockages, etc., led to a mismatch of supply and demand, driving up prices globally. As a large player in the global market, widespread tariff increases from the U.S. (even just the threat of tariffs) could cause a shock to supply chains across the globe, pushing prices up for goods once again, and feeding into topline inflation.

Costs passed down to consumers through tariffs could be more difficult to absorb this time: The price sensitivity index reached a series high in January, suggesting that appetite for higher prices continues to wane. A high price sensitivity index suggests that consumers may have more resistance to future price shocks, as their willingness to walk away from purchases are at an all time high.

Further reading: 

• U.S. consumers are paying attention to the tariffs, expect them to increase household expenses, and are willing to blame U.S. companies for rising prices. Read our latest on tariffs here. 
• For more of a breakdown on current supply chain pressures, how tariffs may exacerbate them, and what categories are most impacted, check out our in depth memo.
• Want to make sense of how decreasing consumer sentiment affects the outlook for consumer spending? Our Head of Economic Analysis breaks it down here. 

… Stay tuned, and we’ll be back with more economic insights & research updates in two weeks.