Washington
CNN
—
It’s been a little while since Americans had an inkling of optimism about the economy.
Consumer confidence rose 12.3 points this month to a reading of 98, the Conference Board said in its latest survey released Tuesday, the first monthly gain since November and the biggest monthly increase since March 2021. That’s higher than economists’ expectations for a reading of 88, according to data firm FactSet.
For the past several months, President Donald Trump’s sweeping policy changes, including his ongoing trade war, have taken a toll on people’s attitudes toward the economy. Last month, consumer confidence fell to its lowest level since the early days of the Covid pandemic.
But progress in Trump’s negotiations with other countries over trade gave Americans a sense of hope this month.
“The rebound was already visible before the May 12 US-China trade deal but gained momentum afterwards,” Stephanie Guichard, senior economist at the Conference Board, said in a release. “The monthly improvement was largely driven by consumer expectations as all three components of the Expectations Index — business conditions, employment prospects, and future income — rose from their April lows.”
Still, economic jitters persist and Trump still has more than a hundred trade deals to hash out by early July, when his reciprocal tariffs are slated to go back into effect, if countries haven’t negotiated a trade deal with the US. So, uncertainty is still very much elevated, which raises the question of what it means for consumer spending, which powers two-thirds of the US economy.
“Consumer confidence may have soared, and Americans have reason to be happy given the rollback in tariffs, especially with China,” said Robert Frick, corporate economist at Navy Federal Credit Union, in commentary issued Tuesday. “But when prices start rising from existing tariffs in a month or two, it will be a sobering reminder that a new inflation fight has just begun.”
Trump’s trade war is still in flux, but some countries have signaled they’re willing to cooperate and potentially strike a full trade deal.
The first country was the United Kingdom on May 8, which didn’t announce an actual trade deal, but rather a concept of a framework, with some details that were agreed upon, such as car imports from the UK being taxed at a reduced rate.
Then on May 12 in Geneva, China and the United States agreed to drastically roll back tariffs on each other’s goods for an initial 90-day period, in a surprise breakthrough between two countries that were engaged in a worsening tit-for-tat trade war.
But any potential US-China trade deal still has a rocky path ahead. Last week, China’s Commerce Ministry said the US was “undermining” the Geneva talks after the Trump administration warned companies against using AI chips made by national tech champion Huawei. Beijing has also scoffed at Trump’s demand that China work to prevent the flow of fentanyl into the US, saying that it’s the “US’s problem, not China’s.”
The European Union on Sunday said it’s willing to fast-track trade talks with the US, prompting Trump to delay the 50% tariff on EU imports he threatened last week until July 9. Trump said he and European Commission President Ursula von der Leyen had a “very nice call” that led to the pause.
“(Von der Leyen) said she wants to get down to serious negotiation,” Trump told reporters at Morristown Municipal Airport in New Jersey. “July 9 would be the day, that was the date she requested. Could we move it from June 1 to July 9? I agreed to do that.”
Consumer confidence may potentially be starting to recover, but Trump’s trade war is far from over. That leaves Wall Street and the Federal Reserve to keep a close eye on whether consumer demand remains in positive territory or fall off a cliff in the face of lingering uncertainty.
It’s been somewhat difficult to assess the true health of consumer spending lately. Over the past few months, Americans have pulled forward purchases, particularly of cars, to beat Trump’s tariffs. That has skewed crucial economic data, such as retail sales. Will consumers continue to spend after these brief buying sprints?
A key gauge of underlying demand in the economy — referred to as final sales to private domestic purchasers — accelerated to 3% in the first quarter from 2.9% in the fourth quarter. All eyes will be on that figure for the second quarter, when it is reported in July.
This Friday, the Commerce Department is set to release April data on household spending, income and the Fed’s preferred inflation gauge. That should give market observers a better sense as to whether consumers are pulling back — or continuing to open their wallets.
