Households turn cautious as tariff woes spill over into wider economy

The most unpredictable among the many factors that reflect the health of an economy is people’s sentiment because even the performance of a highly volatile entity like the stock market depends on investors’ mood. Though it is a difficult task to evaluate the collective outlook of the general public accurately, people’s reaction becomes measurable whenever there are profound changes in economic activity.

What makes the consumer confidence indicator worth monitoring is the fact that household spending accounts for more than 70% of the country’s economic activity. To put it simply, when a large section of people decides not to spend on goods and services for a particular period, there will be a corresponding drag on GDP growth.

A widely-followed survey by the Conference Board showed that Americans were less optimistic this month about the country’s economic condition, employment sector, and the stock market. Overall sentiment eased more than expected, marking the first fall this year.

The shift in attitude is in contrast to the consecutive improvement seen in January and February when confidence hit the highest level in 18 years. Meanwhile, the relatively high index levels give hope that a turnaround will happen in the near future.

It is apparent that the holiday hangover has made people stick to their high-spending routine during the months that followed, only to return to the offseason mode later.

In March, Americans were less optimistic about the country’s economic condition, employment sector, and the stock market

At the same time, it would be logical to assume that households might have turned more cautious in their spending habit over the last few weeks, after waking up to the potential ripple effect of the import tariffs imposed by the Trump administration.

Industries affected by the new import duties will pass on their higher costs to customers, which is the most viable option for them to absorb the impact. Businesses that depend on imported steel and aluminum, like the automobile industry, are likely to respond by increasing the prices of their products.

So it makes sense for households to cut expenditure and spend the saved money on the big-ticket items they plan to purchase in future – of course, at a higher price.