Dive Brief:

• Consumer spending fell 0.5% in January on a pullback in purchases of vehicles and other durable goods, the Bureau of Economic Analysis said Friday, highlighting a slump in household confidence as tariffs pose a risk of higher inflation. 
• Households “are increasingly worried about prices with looming tariffs, and employment with government layoffs,” Scott Helfstein, head of investment strategy at asset manager Global X, said in an email. “The consumer may go into wait-and-see mode, assessing the relative benefits and drawbacks of current public policy decisions around taxes and tariffs.”
• After release of the consumer data, the Federal Reserve Bank of Atlanta scrapped its Feb. 19 forecast for a 2.3% annual rate of economic growth during the first quarter. It now expects the economy during Q1 to shrink 1.5%.

Dive Insight:

Two closely tracked gauges of consumer confidence slid in February, pushed down by concerns about import duties enacted and planned by President Donald Trump.

The Conference Board’s index of consumer sentiment fell for a third straight month in the biggest decline since August 2021, the business think tank said on Feb. 25. Also, for the first time since June, the Conference Board’s index of consumer expectations slumped to a level that usually presages recession.

“Views of current labor market conditions weakened,” Stephanie Guichard, senior economist for global indicators at the Conference Board, said in a statement.

“Consumers became pessimistic about future business conditions and less optimistic about future income,” she said, adding “pessimism about future employment prospects worsened and reached a 10-month high.”

Similarly, the University of Michigan said on Feb. 21 that its measure of consumer sentiment slumped in February, largely on worries that import duties will push up price pressures.

All five components of the university’s sentiment index declined, led by a 19% plunge in buying conditions for durable goods that was prompted “in large part due to fears that tariff-induced price increases are imminent,” Joanne Hsu, director of the university’s survey, said in a statement.

The BEA also published data on Friday showing that, by one measure in January at least, the outlook for the Fed’s fight against inflation did not dim.

The central bank’s preferred gauge of inflation — the core personal consumption expenditures price index excluding volatile food and energy prices — rose 0.3% in January and 2.6% on an annual basis, in line with forecasts.

Consumers are not confident that Fed policymakers will succeed in curbing inflation to their 2% goal anytime soon, according to the Conference Board. Their 12-month expectations for inflation surged to 6% in February from 5.2% the prior month.

“This increase likely reflected a mix of factors, including sticky inflation but also the recent jump in prices of key household staples like eggs and the expected impact of tariffs,” Guichard said.

“There was a sharp increase in the mentions of trade and tariffs, back to a level unseen since 2019,” she said. “Most notably, comments on the current administration and its policies dominated the responses.”