Consumer Sentiment Dragged by Trade Policy and Inflation, Says EY Economist

Partisan Divide in Consumer Sentiment

• 📊 The University of Michigan consumer sentiment index shows a significant partisan divide, with Democrats and independents reporting more negative views than Republicans.
• ⚠️ This political polarization of data raises questions about its reliability and interpretation.

Key Drivers of Negative Sentiment

• 📉 Trade policy and tariffs are identified as major sources of drag on consumer sentiment, creating uncertainty.
• 💸 Consumers are concerned about inflationary pressures leading to an erosion of their purchasing power and ability to spend.
• 📈 Sentiment gauges, both for consumers and businesses, reflect anticipation of higher prices and a potential slowdown in economic activity.

Independent View on Inflation

• 💡 The sentiment of independents is highlighted as a key indicator, as their inflation expectations have been rising consistently.
• 🎯 This rise in independent expectations is linked to anticipation of higher prices stemming from tariffs.

Soft Data vs. Hard Data

• 🧩 There's an ongoing tension between soft data (sentiment) pointing to a slowdown and hard data (economic indicators) that haven't yet fully reflected these disruptions.
• 🔍 Initial disruptions from tariffs are starting to appear in goods prices (CPI, PPI) and retail sales, though not yet broad-based.
• ⏳ It is expected that these impacts will take time to be fully reflected in official data releases.