Inflation, Trade Wars Rattle Consumer Confidence
The Consumer Confidence Index (CCI) has long been considered a key measure of consumer optimism among Wall Street analysts and economists. The index is released each month by The Conference Board, a U.S.-based provider of global economic data and research. The CCI has a benchmark of 100. Any level above 100 indicates an optimism by consumers on jobs, income and the economy. Conversely, any level below 100 conveys pessimism.
For the month of February, the CCI was reported at 98.3, a significant drop from January’s level of 105.3. In fact, the seven-point drop was the largest monthly decline since August 2021. It also marked a transition from consumer optimism to pessimism. February’s level of 98.3 is the lowest reported level for the CCI since June 2024 (97.8).
A closer analysis reveals two common themes of concern among American consumers. The first is persistently high inflation. The second, and more recent, are the escalating trade wars initiated by President Trump.
On the inflation side, on Wednesday, the Department of Labor released its latest Consumer Price Index (CPI). In February, the national rate of inflation was reported at 2.8%, below the 3.1% reported in January. It was the first decline in the inflation rate in five months. Core CPI, which strips out the more volatile and seasonal food and energy prices, was reported at 3.1%, a near four-year low.
Despite the positive news, inflation still remains excessively high. The ultimate goal is for inflation to return to its target rate of just 2%. However, the last time inflation was at, or below, 2% was in February 2021 (1.7%).
But Trump’s trade wars have created a heightened sense of uncertainty for consumers as well as for businesses. They’ve also unleashed a myriad of questions. What foreign goods will be tariffed? At what percentage will the tariffs be? Which U.S. trading partners will these tariffs be applied to? How long will the tariffs last? What U.S.-made goods will be targeted for retaliation?
American businesses are scrambling to adjust their global supply chains to avoid paying higher costs on tariffed goods. Likewise, consumers are beginning to raise concerns of an eventual slowdown in the economy and in the labor market. Stephanie Guichard, Senior Economist at The Conference Board, states “[Consumer] views of current labor market conditions weakened. Consumers became pessimistic about future business conditions and less optimistic about future income. Pessimism about future employment prospects worsened and reached a 10-month high.”
As I’ve always said, optimistic and confident consumers tend to spend their money much more freely. But for inflation-weary Americans, navigating the recent trade wars creates yet another layer of anxiety. For many Americans, their confidence in their economic outlook is beginning to wane. The longer their confidence remains in doubt, the greater the likelihood they start to cut back on their spending at the checkout line.
Mark M. Grywacheski, Investment Advisor
Quad Cities Investment Group is a Registered Investment Adviser.
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