Consumer Says: How Do Consumers Feel About Tariffs?

What's new in the economy?

• The Federal Reserve will announce its interest rate decision at 2PM today–and markets are expecting a 25 basis point cut: This outcome would mark the third consecutive cut, bringing the target federal funds rate to a range of 4.25%-4.5% - a full percentage point below where it sat from August 2023 to August 2024. 
• …But the future rate path remains murky, with inflation looking stickier: Despite the market’s confidence in a cut, the decision is not without controversy. Inflation has begun to look more stubborn recently, with the Consumer Price Index (CPI) in November rising to 2.7% from 2.6% - not a surprise, but a move in the opposite direction from the 2.0% target. Furthermore, inflation faces upside risks in 2025; and the labor market cooling–which has been a key motivator in the Fed’s decision to cut rates so far–has  shown some signs of stagnating, including accelerating wage growth in certain sectors.
• Strong spending could be another factor supporting a pause on rate cuts, as November retail sales jumped, driven by autos and online shopping: The Census Bureau announced that nominal retail sales increased 0.7% in November, coinciding with a recent rise in Morning Consult’s Consumer Health Index (CHI) scores across all income levels. Most of the monthly spending increase was tied to sales of autos–for which prices have fallen year-on-year–and nonstore (online) retailers, which posted their largest annual sales growth rate since March. However, consumer splurging on goods is not without trade-offs: The lone services category tracked by the release–restaurant spending–fell, dropping its annual growth rate to the lowest level since 2021.

Consumer says...

How do consumers feel about tariffs? We asked them! Some key findings are below…

On net, consumers are skeptical of most of the currently circulating tariff proposals, with many believing they will have a negative impact on their household finances–primarily by raising costs of various goods they buy. Opinions are split along partisan lines, however, with Republicans tending to be more supportive of tariffs and optimistic about their benefits to household finances and the economy. 

Consumers remember their household expenses increasing the last time Trump tariffs were implemented in 2018, but believe the current proposals would have more substantial impacts. 

Certain categories will face more pushback on tariff price increases than others. Consumers on net expressed strong opposition to raising tariffs on household staples like groceries or paper goods. Potential tariffs on big ticket items that aren’t purchased as frequently, like new cars or electronics, also elicited more opposition than support from survey respondents, however the gap was narrower.

Product-level tariff opposition was highly correlated with the two-year change in Morning Consult’s Price Sensitivity scores for these items. In other words, the more sticker shock has already risen for a given product, the less willing consumers are to accept the risk of additional price increases from tariffs on that product. 

Higher income adults show somewhat less concern about tariffs than lower and middle income adults. Throughout 2024, high earners have displayed relatively more robust spending and benefitted from factors like rising values for owned homes and investments. This group may therefore have more flexibility to absorb cost increases from tariffs, whereas lower and middle income households remain more impacted by the run-up in the cost of living over the past couple of years. 

Watch or listen to the full podcast for even more discussion of our tariff survey findings and how they relate to our other findings on the state of the U.S. consumer!

Further reading: 

• Can’t get enough on tariffs? Our colleagues on the geopolitical team released a memo this week highlighting reputational risk faced by corporations from passing on potential tariff costs to already price-weary consumers. 
• We released our mid-month update to the U.S. Jobs & Labor tracker, including our weekly U.S. unemployment index. The index has drifted lower through mid-December, though remains slightly above its year-ago level. 
• Even as sentiment and spending improved in recent months, price sensitivity has remained a central issue for consumers in 2024. We took a look at how cost-saving behaviors have evolved for various categories over the past year in our latest memo featuring data from our U.S. Inflation & Supply Chains tracker!

…and with that, we are closing out the 2024 season of Consumer Says! Stay tuned, and we’ll be back with more economic insights & research updates in the new year!