Americans aren't feeling encouraged by Trump's trade negotiations

Yahoo

3 days ago

Americans didn't feel any sense of optimism about the US economy this month, despite tensions easing somewhat in President Donald Trump's ever-evolving trade war.
Consumer sentiment held steady in May compared to the prior month at a final reading of 52.2, the University of Michigan said in its latest survey released Friday. Sentiment was slightly worse earlier this month, according to a preliminary reading, which 'turned a corner in the latter half of the month following the temporary pause on some tariffs on China goods,' according to a release.
May's reading matched April's for the fourth-lowest reading in consumer sentiment on records going back to 1952, lower than anything seen during the Great Recession.
The chaotic rollout of Trump's tariffs has unsettled Americans in recent months, but it doesn't necessarily mean spending is bound to weaken, economists say. Still, the resilience of the US economy — including the labor market — has come into question as Wall Street, the Federal Reserve and everyday consumers continue to have a bleak outlook.
'Consumers see the outlook for the economy as no worse than last month, but they remained quite worried about the future,' Joanne Hsu, the survey's director, said in a release.
The survey's index capturing people's expectations for business conditions, employment and income inched slightly higher this month from April, but it was still down a sharp 30.4% compared to the same month a year earlier. Consumers' expectations for inflation were also much more modest in May compared to prior months, with year-ahead inflation expectations seeing 'the smallest increase since the election' and marking 'the end of a four-month streak of extremely large jumps in short-run expectations,' the university said.
The economy's health now largely hinges on what happens in Trump's trade war. A court this week deemed it unlawful for Trump to use emergency powers to put in place most of his sweeping tariffs, though the administration on Thursday successfully appealed to put them back into place for now. On Friday, Trump claimed that China has 'totally violated' its trade agreement with the United States, which sent stocks lower.
The latest Michigan survey was conducted through May 26, so it doesn't take into account the recent court rulings and Trump lashing out at China.
The constant twists and turns in Trump's trade war is making it difficult for policymakers, economists and investors to estimate with any confidence what the US economy's future might look like, since most of it depends on what happens with tariffs. That could keep interest rates elevated.
Fed officials earlier this month 'agreed that uncertainty about the economic outlook had increased further,' according to minutes from their May 6-7 meeting released Wednesday. They said that persistent uncertainty, especially with Trump continuing to flip-flop on his tariff threats, means that it is 'appropriate to take a cautious approach' — holding borrowing costs steady.
And several trade developments have occurred since Fed officials last convened earlier this month.
'If on the backend of this thing either we don't put the tariffs in or they reach some deals that allow us to avoid doing that, we could go back to what we were prior to April 2,' Chicago Fed President Austan Goolsbee said Thursday at a policy conference hosted by the Detroit Regional Chamber. 'If you have stable full employment and inflation going to target, rates can come down to where they would eventually settle.'
For now, all eyes are on whether Americans will continue to open their wallets — or pull back in the face of swirling uncertainty. Separate data from the Commerce Department out Friday showed that consumers slowed their spending sharply in April after going on a spending spree in the prior month to get ahead of any sticker shock due to tariffs.
'It's always an encouraging sign to have better sentiment data, but what really matters is consumer spending — and there's still a segment of the population with capacity to spend because of asset prices,' Tom Bruce, macro investment strategist at Tanglewood Total Wealth Management, told CNN. 'We still have a very strong wealth effect going on throughout the economy for those who own assets.'