US consumer sentiment fell in August by the most since 2012 to its lowest level during Donald Trump’s presidency amid concerns about the impact of the trade war between Washington and Beijing on the US economy.
The University of Michigan’s final consumer sentiment survey fell to 89.8 this month — its lowest since October 2016 — down from 98.4 in July. That also marked the biggest one-month drop since December 2012, when fears of going over the so-called fiscal cliff had unnerved consumers.
Tariffs were flagged as a concern by one-in-three consumers, the report found.
“Unlike concerns about the fiscal cliff, which were promptly resolved, Trump’s tariff policies have been subject to repeated reversals amid threats of higher future tariffs,” said Richard Curtin, chief economist of the surveys of consumers. “Such tactics may have some merit in negotiations with China, but they act to increase uncertainty and diminish consumer spending at home.”
US consumers have been the driver of economic growth in the US, with second-quarter growth figures showing consumer spending at the highest in more than four and a half years. Meanwhile, a separate report on Friday showed solid US personal spending growth in July, indicating a strong start to the third quarter.
However, concerns have grown that consumers could retrench amid growing fears about an economic slowdown or a possible recession in the US.
“Unlike the repeated tariff reversals, negative trends in consumer sentiment cannot be easily reversed,” said Mr Curtin. “The data indicate that the erosion of consumer confidence due to tariff policies is now well under way.”
The trade war between the US and China escalated last week with both Beijing and Washington raising tariffs on each other’s goods. Mr Trump then called for American companies to look for an alternative to China and since then the countries are in discussions to resume talks in September.
On Friday, Mr Trump tweeted “we don’t have a tariff problem”, instead turning his ire on the Federal Reserve and “badly run and weak companies” that “are smartly blaming these small Tariffs instead of themselves for bad management”.
The Fed cut rates in July as some of its key policymakers voiced concerns about “uncertainties” linked to weakness in the global economy and trade fears. Fed chair Jay Powell has said that fitting trade uncertainty into its policy framework was “a new challenge”. Mr Powell added that setting trade policy was “the business of Congress and the administration, not that of the Fed”.