Consumer confidence in 2025 has fallen off a cliff. The consumer sentiment index from the University of Michigan fell to 50.8 in May, its lowest in three years. As inflation fears mount and prices rise, Americans are feeling the hit. What is behind this downturn in confidence?
A Steep Decline in Sentiment
The University of Michigan consumer sentiment survey is one of the most significant gauges of how Americans feel about the economy. In May 2025, it dropped to 50.8, the lowest level since the early 2022 post-pandemic slump.
For context, any reading below 60 is considered very low. So what’s going on?
The primary culprit is inflation, particularly how new tariffs have intensified price hikes.
Tariffs Are Driving Up Inflation
President Donald Trump introduced sweeping new tariffs in April on nearly all foreign-imported products. This move was part of his broader “America First” economic strategy, aimed at boosting domestic manufacturing and reducing trade deficits. However, the immediate effect was a rise in prices.
Retail giants like Walmart, Target, and Costco increased prices almost overnight. Consumer staples such as food, clothing, and electronics became more expensive. Disrupted supply lines caused companies to pass rising costs on to consumers.
This rapid inflation is an example of cost-push inflation, which happens when increased production costs—often due to policy or supply shocks—lead to higher prices across the board.
Short-Term Inflation Expectations Surge
The same University of Michigan study revealed that short-run inflation expectations have surged to 7.3%, the highest since 1981 during the tail end of the stagflation era.
Even more concerning, long-run inflation expectations are also climbing, suggesting that many Americans do not expect relief anytime soon.
This matters because inflation expectations are self-reinforcing. If people believe prices will keep rising, they demand higher wages and raise their own prices—feeding a dangerous feedback loop.
Real-World Impact: Walmart and the Price Shock
Consider Walmart. During its most recent earnings call, executives confirmed that tariffs had forced them to raise prices on more than 3,000 product lines.
Everything from children’s clothing to canned goods and laptops now costs more. This is a major blow to low-income families, who already spend a higher percentage of their income on essentials.
A $150 shopping trip in 2024 might now cost $170 or more. And with wages lagging, it adds up fast.
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What Americans Are Saying
Interviews conducted alongside the University of Michigan index show a darkening mood among consumers. Here are some common sentiments:
“My paycheck doesn’t go as far anymore.”
“Everything’s more expensive, and I’m cutting back.”
“I don’t know if now is the right time to buy a house or car.”
These aren’t just complaints. They indicate a real pullback in consumer activity—troubling news, considering consumer spending makes up nearly 70% of U.S. GDP.
Economic Growth and Consumer Confidence in 2025
Falling consumer confidence in 2025 isn’t just a psychological issue—it has real economic consequences.
When consumers feel uncertain, they spend less. This reduced spending causes businesses to scale back hiring, cut investments, or even lay off workers. In extreme cases, this can lead to a recession.
While the U.S. is not officially in a recession yet, warning signs are flashing:
- Retail sales have slowed sharply since March.
- Mortgage applications are down nearly 40%.
- Car dealerships are seeing excess inventory as consumers postpone big purchases.
It all circles back to declining confidence and increasing costs.
The Stagflation Shadow
With inflation climbing and growth slowing, economists are sounding the alarm about stagflation—a dangerous mix of stagnant growth and high inflation.
The last time the U.S. faced stagflation was in the late 1970s and early 1980s. Breaking that cycle required record interest rates and a painful recession.
Today’s Federal Reserve faces a tough choice: raise interest rates to fight inflation and risk a slowdown, or hold steady and allow inflation to persist. Neither option is ideal, especially in an election year.
Political Implications
Economic anxiety always has political consequences.
President Trump’s revised tariff strategy is popular among many working-class voters. However, the resulting price hikes could cost him support among independents and suburban families who are increasingly feeling the squeeze at the grocery store.
Meanwhile, Democrats are seizing the opportunity to push for more social spending and price controls—ideas that may gain traction if frustration continues to grow.
In short, consumer confidence in 2025 is becoming one of the year’s defining economic and political issues.
Is There a Fix?
There is no quick solution, but several economic strategies are being discussed:
Targeted Tariff Relief
Temporarily reducing tariffs on essential goods like food and medicine could ease inflation without undermining long-term trade policy.
Supply Chain Support
Investing in U.S.-based manufacturing and logistics could lower costs over time, though not immediately.
Consumer Stimulus
Rebates or tax credits might restore purchasing power, though they risk increasing inflation in the short term.
Monetary Policy
The Federal Reserve may need to fine-tune interest rates to strike a balance between slowing inflation and avoiding a downturn.
Most likely, a mix of these approaches will be needed—along with political compromise.
What the Experts Say
Diane Swonk, chief economist at KPMG, warns:
“Inflation expectations are unanchored. That’s dangerous. Once people believe inflation is here to stay, it gets much harder to control.”
Jason Furman, former chair of the Council of Economic Advisers, adds:
“Tariffs are a tax. And now the public can see who they are paying for—it’s not China, it’s American families.”
Global Ripples
The consumer confidence crisis of 2025 is not limited to the United States.
As the world’s largest economy slows, global financial markets are becoming more volatile. Exports to the U.S. from other countries are already declining, and investors are rushing to safe-haven assets like gold and the U.S. dollar.
Falling U.S. consumer confidence could easily spill over into the global economy, a situation that central banks and international companies are watching closely.
Closing Thoughts: Hope on the Horizon?
While the outlook seems grim, there are reasons for guarded optimism:
- Energy prices are stabilizing after early-year volatility.
- The labor market, though slowing, is still adding jobs.
- Consumers are adapting—buying in bulk, switching to store brands, and coupon-clipping.
Historically, American consumer confidence rebounds quickly once inflation is under control. If policymakers can tame inflation by midyear, there’s a good chance confidence will return by fall.
Until then, consumer confidence in 2025 remains a key pressure point—and a powerful reminder of how fast the economic winds can change.
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