Consumer confidence in the U.S. has taken a significant hit this month, with new data revealing that sentiment is near record lows—driven largely by renewed concerns over inflation and uncertainty surrounding U.S. trade policy. According to the University of Michigan’s preliminary May survey, the index of consumer sentiment dropped to 50.8, down from 52.2 in April, making it the second-lowest reading on record.
The downturn in sentiment comes amid growing anxiety that recent tariff policies could lead to higher inflation, particularly for everyday goods. Although the U.S. and China announced a 90-day pause on most tariffs, that news broke after the majority of survey responses had already been collected. As a result, the full impact of the temporary tariff relief won’t be known until the final May reading is released later this month.
Still, the fear among consumers is palpable. Tariffs were spontaneously mentioned by nearly three-quarters of respondents, up from 60% the month prior, according to Joanne Hsu, director of the Surveys of Consumers. “Uncertainty over trade policy continues to dominate consumers’ thinking about the economy,” Hsu said in the release.
This sentiment drop also coincides with a jump in inflation expectations. The University of Michigan’s survey showed that year-ahead inflation expectations rose to 7.3%, up from 6.5% in April, while long-term expectations ticked up to 4.6% from 4.4%. These numbers are significant not just as a gauge of consumer outlook, but because they influence how the Federal Reserve calibrates monetary policy.
Fed Chair Jerome Powell has consistently pointed to inflation expectations as a critical variable, emphasizing the central bank’s goal of preventing long-term expectations from becoming unanchored, particularly amid external price pressures like tariffs.
Interestingly, recent inflation data from April showed no significant tariff-related bump, with both the Consumer Price Index (CPI) and Producer Price Index (PPI) coming in below expectations. Still, the perception among consumers suggests that confidence in long-term price stability remains fragile.
While the White House maintains that tariffs are part of a broader strategy to protect American businesses, particularly small enterprises, some industry voices suggest the impact is far more complicated.
“The administration says it’s unleashing opportunity for small businesses—but tariffs do the opposite,” says George Kailas, CEO of the financial insights platform Prospero.AI. “They quietly inflate the cost of goods, disrupt supply chains, and force small business owners to make impossible choices.”
Kailas takes issue with the framing of tariffs as a pro-small business policy, particularly during National Small Business Week, when the administration celebrated its trade strategy as a win for Main Street.
“You can’t strengthen the backbone of the economy by weighing it down,” he argues. “If we’re serious about helping small businesses grow, we need policies rooted in reality—not press release spin.”
Kailas’s perspective reflects a broader tension in the economic narrative: while tariffs are politically framed as protective measures, many small businesses operate within complex global supply chains. As a result, added import costs often show up as increased expenses for entrepreneurs who are already facing higher wages, shipping delays, and tight lending conditions.
Whether the recent 90-day tariff pause with China will restore consumer confidence remains to be seen. The final consumer sentiment index for May, set to be released on May 30, will offer a fuller picture of how the public is reacting to the evolving trade landscape.
In the meantime, the discrepancy between official messaging and on-the-ground realities remains a point of friction. Consumer unease, especially when tied to inflation fears, tends to ripple through the broader economy. People spend less, save more, and delay investments when they feel uncertain—all of which can slow economic growth even in the absence of actual price spikes.
For policymakers, the challenge ahead is twofold: ensuring that trade policies are effective without harming small businesses, and rebuilding consumer confidence in a system many feel is growing increasingly unpredictable.
As Kailas and others suggest, closing the gap between economic messaging and real-world outcomes may be the first step in reversing the current slide in sentiment. Until then, volatility—both in the market and in the minds of consumers—seems likely to persist.
