Fears regarding President Donald Trump’s tariffs helped trigger a noticeable downturn in the stock market over the weekend, but a wider set of factors are setting off alarm bells for analysts.
Consumer sentiment has declined significantly since January. The University of Michigan’s consumer survey found a 9.8% decline in its index of consumer sentiment from January to February, with the decline evident across every age, income, and wealth group. All five recorded index components fell, led by decreased hopes of Democrats and independents, while Republicans remained optimistic.
Data from January showed that consumers cut their spending by 0.2% from the previous month, the first decline since March 2023. With two-thirds of U.S. economic activity being driven by consumption, the decline could spell further trouble.
Another alarming sign comes from credit card debt and auto loans. Consumers currently have a collective credit card debt of $1.21 trillion, a record high, suggesting that much of recent consumer spending was driven by borrowing. An increasing number of borrowers have also fallen behind on car payments.
“Higher car prices combined with higher interest rates have driven monthly payments upward and have put pressure on consumers across the income and credit score spectrum,” researchers at the New York Federal Reserve Bank wrote.
Small businesses are contributing to the gloomy outlook. The National Federation of Independent Business optimism index recorded the fastest decline in small business owners’ optimism in five years, falling by 2 points in February. The group’s uncertainty index also gave its second-highest reading ever.
Only 12% of small business owners said it is a good time to invest. They have largely responded by raising prices.
Another major investment indicator, the fear and greed index, registered at “extreme fear” for the first time since the FTX collapse.
The plethora of signals reflect an overall belief by people that the economy is getting worse, 51% of whom reported the belief in a recent Harris poll.
Nevertheless, not all signs are bad. The S&P 500 is still up roughly 10% from the same point a year ago. Job growth continued in February, with employers adding 151,000 jobs. Goldman Sachs’s estimate that a recession could occur in the next 12 months sits at just 20%. In March 2023, they had it at 35%, though a recession never came.
Despite the fears, Trump has urged patience, arguing that an adjustment period is needed to get the economy thriving. He dismissed one of the most alarming signs, a decline in the stark market, as short-sighted.
“Look, what I have to do is build a strong country. You can’t really watch the stock market. If you look at China, they have a 100-year perspective. We have a quarter. We go by quarters,” Trump said in a Sunday interview on Fox Business’s Sunday Morning Futures.
“And you can’t go by that. You have to do what’s right. We’re building a tremendous foundation for the future, tremendous foundation. Everything’s been taken away. We don’t make ships anymore,” he added.
TRUMP OFFICIALS ACKNOWLEDGE TEMPORARY PAIN AMID TARIFFS AND MARKET UNEASE
Other Trump administration officials have used similar rhetoric.
“There’s going to be a natural adjustment as we move away from public spending to private spending,” Treasury Secretary Scott Bessent said. “The market and the economy have just become hooked. We’ve become addicted to this government spending. And there’s going to be a detox period.”
This article was originally published at www.washingtonexaminer.com
