Consumer Says: Tariff Effects Remain a Waiting Game for Consumers

Temperature check on the U.S. economy

In each edition of Consumer Says, our economists give an updated rating for current economic conditions using temperature as a metaphorical metric. Our “perfect temperature”--signifying an economy that is strong but not overheating–is 70 degrees. 

🌡️ Current temperature: 66 ℉

We’re keeping the temperature at the same degree as two weeks ago. Several pieces of “soft” data — consumer sentiment, business sentiment, and inflation expectations — provide good news, but signals from “hard data” indicate “more of the same” to slight deterioration.

Consumer says:

➡️ The latest CPI release brings more good news: Today’s consumer price index figures came in lower than expectations, which is continued good news for consumers. Despite the worries about higher prices from tariffs, even in some highly imported categories such as apparel, prices dropped month over month. Higher inventories or reluctance to pass on tariff costs to consumers gave shoppers another month of reprieve from higher price tag surprises. There is some uptick in categories like household furnishings, but they are still too low to cause alarm, though it’s something to be watched in the next two months. Lower energy costs were also welcome. Food prices increased slightly month over month after a drop last month. Housing cost growth remains sticky, which will continue to concern the Fed.   

• 📣 Consumer Says: Morning Consult’s Inflation and Supply Chains tracker shows a similarly muted pattern, especially for the price surprise index, which is the most comparable to what the CPI measures. At an aggregate level, the price surprise index was almost identical to last month’s. A negative index figure indicates that among those who completed a purchase, the share of those who stated the good/service had a higher-than-expected price is lower than that of those who said not. More negative indexes indicate that fewer respondents saw higher-than-expected pricing; such as airline fares, which became more negative in our index, and aligns with the CPI measure for the same category. In her memo unpacking the supply side of the index, my colleague Kayla Bruun focused on what’s to come once front-loaded inventories run out: Businesses could then pass on higher costs to consumers. Morning Consult’s supply chain indexes, especially the delivery delays, may already provide clues on what shoppers may face in the coming months.

👍 Consumer sentiment and inflation expectations: The much-anticipated preliminary results from the University of Michigan consumer sentiment survey will be released this Friday, when we’ll also get their latest read on inflation expectations. Last month’s preliminary results were alarming for many as inflation expectations jumped and consumer sentiment tanked. As surveying continued throughout the month, final results showed some improvement. For June’s release, markets expect a slight improvement.

• 📣 Consumer Says: Morning Consult’s consumer sentiment data is daily, so we did not record a sharp contraction in the same period that the University of Michigan did. We saw a downturn between January and most of April, but the index has since recovered. In fact, it completely reverted to the highs before the onset of the Trump presidency. Therefore, we expect a higher figure for this month's University of Michigan release. This most recent up-and-down consumer sentiment period parallels the stock market movements in the last five months. However, the current economic situation is not as rosy if other indicators — such as the bond market or the dollar index — are considered. Furthermore, consumers are not as hopeful about the future as they used to be. While the forward-looking indexes (grouped under the Index of Consumer Expectations) have also improved, they have not reached their previous highs of January. In the meantime, current conditions indexes soared and surpassed their most recent highs. This indicates that although consumers remain optimistic today (absent higher unemployment and spiking inflation levels), their views about th

🟡 A steady labor market is flashing its warning signs: Our latest tariff tracker data showed that consumers are not hearing or seeing tariff effects (in the form of hiring and layoffs) in their workplace. Businesses, in general, remain in a wait-and-see mode for hiring and layoff decisions. This is to an extent reflected in one of the broadest economic indicators, the unemployment rate, which remained at 4.2% last month. While job growth numbers beat expectations, warning signs can be seen in the fact that gains were not broad-based. Health care and social assistance continued to drive growth, while there was weakness in manufacturing, retail, administrative, and support services. But there was one notable part in the BLS’ unemployment situation report: the federal government workforce. Federal workers continued to lose jobs in May, a trend that has continued since the beginning of the year.

• 📣 Consumer Says: Morning Consult’s unemployment index stayed relatively stable last month after experiencing its recent ups and downs. Everyone is waiting for the other shoe to drop in the labor market, but so far, it seems outwardly steady, and frozen inside. Consumers agree that while they feel anxious about the possible detrimental effects of tariffs, they still benefit from a low unemployment rate.