The tariffs imposed by President Donald Trump are already influencing spending habits, signaling potential economic difficulties. There's increasing evidence of consumers exercising caution as they expect tariffs to inflate prices on a variety of imports. A report from the Bureau of Economic Analysis disclosed that in February, US households decreased services spending but increased their goods expenditures, suggesting a rush to buy items before tariff imposition.
In a separate survey conducted by the University of Michigan, foreseeing of future inflation hit its peak since 2022 and expectations for unemployment reached its highest level since the Great Recession. This raises concerns that households might be gearing up to reduce shopping.
These recent findings underlay the significant implications that Trump's changing tariff policies have had on the economy. Economists worry that consumers faced with higher product prices will curtail spending, undermining an essential element of economic health, as consumer spending constitutes 68% of the Gross Domestic Product (GDP).
Morning Consult's latest survey reveals that households plan to significantly decrease their spending on both essential and discretionary items if tariff-driven inflation occurs. About 35% of households earning less than $50,000 plan to cut back on groceries, and 19% of those earning over $100,000 share the same intention. More than 20% across all income groups mentioned plans to reduce dining out and clothing expenditures.
The expectations of increased living costs due to Trump's import taxes are driving this trend. Market experts predict not only retailers passing on tariff costs to consumers but also domestic companies being able to raise their prices due to lessened import competition. Concurrently, there are rising fears about a job market slowdown.
Despite the current record low unemployment, hiring by employers has decreased. Tariff-induced economic deceleration could further impact job growth. According to a recent survey from Michigan, two-thirds of participants anticipate an increase in unemployment over the next year-the highest figure since 2009.
Increasing tariffs could add tension to already strained household budgets from escalating living costs. The US economy is projected to contract by 2.8% in Q1 2025, based on the Federal Reserve Bank of Atlanta's GDP Now tool. Information indicates that unlike in the past, consumers may not be capable of buffering this impending economic slowdown.