In recent weeks, the Trump administration’s economic policy agenda and the way that agenda is being implemented has spooked consumers, businesses, and investors. The so-called “soft data” — polls and sentiment surveys — reveal a distinctly downward drift in people’s feelings about Trump’s tariffs, DOGE’s layoffs and budget cuts, and the lack of attention to pre-existing stressors such as grocery and housing prices.
The most recent Consumer Confidence survey took a 6.7% nosedive in February, its biggest drop since August 2021. The index that specifically tracks respondents’ expectations as to where things might be headed fell even faster, down 11.3%. These monthly data tend to be noisy, but they’re backed up by a lot of other data. One consistent finding is that people think tariffs are going to create new price pressures (and, as I previously wrote, they’re right). A Washington Post-Ipsos poll found that “about 7 in 10 Americans think tariffs generally increase the price of products in the United States.” Other data show a 19% plunge in how consumers view buying conditions for big-ticket items, again because of beliefs that tariffs will soon raise prices.
Consumers are nervous, and so are businesses and investors.
Granted, there’s been more bluffing on tariffs than actual tariffs put in place, but that can only go on for so long before the bluffs lose any credibility. Which is perhaps why President Trump now says new tariffs of 25% on U.S. imports from Mexico and Canada will take effect this week, plus an additional 10% on China.
The upshot is that consumers are nervous, and so are businesses and investors, due to the sharp rise in uncertainty about where relevant policy and government actions — trade policy, layoffs of federal workers, cutting of public spending and private contracts — are headed. Trade policy uncertainty is at its highest level since the first Trump administration, according to an index developed by economists Scott Baker, Nick Bloom and Steven Davis (although, as Stephen Cobert said last week, “can you ever really know where you are on the uncertainty index?”).
But what impact does this all have on the real economy, meaning jobs, incomes, and business investments? After all, during the Biden administration, we lived through years of bad vibes but strong growth, especially consumer spending.
In fact, the so-called “hard data” — jobs, GDP, unemployment — still look good, but there are worrying signs, with one in particular catching my attention. I’ll get to that indicator in a moment, but first let’s be clear that it takes a lot of bad policy (or bad luck, or bad financial or housing bubbles) to reverse the fortunes of an almost $30 trillion economy comprised of 340 million people. Trump inherited an economy that was reliably growing based on a simple, solid formula: The strong labor market, in tandem with easing inflation, was and is generating real wage gains that support consumer spending, which, at 68% of the US economy, is the biggest portion of GDP. At the same time, business investors have been pretty active, investing in technology, especially AI, but also, encouraged by Biden-era incentives, in domestic production of computer chips and clean energy.
That said, at the end of last week we learned about one hard indicator that may portend trouble: real consumer spending fell by 0.5% in January. That’s just one month in a noisy data series, January was unusually cold, which can dampen some spending (though not online spending, of course), and spending at the end of last year was strong, so maybe this is just a pause.
But maybe it isn’t. Spending on big ticket items—“durable goods”—was sharply down in January after strong months in November and December. That suggests consumers, worried about the price impact of the tariffs, tried to get ahead of them at the end of 2024.
Businesses are clearly concerned — and they know who to blame. Similarly, because DOGE layoffs have the potential to hit the earnings of hundreds of thousand of federal workers and private contractors, it would make sense for them to precautionarily save right now. And indeed the January savings rate spiked up by more than a percentage point, a big jump for one month. Businesses are clearly concerned — and they know who to blame. A new survey by S&P Global Businesses reports that “firms widely blamed lower sales and activity levels on uncertainty and instability surrounding new government policies in the US, including federal spending cuts and tariff-related developments.” It’s not just the private sector feeling uncertain either: Pennsylvania, for example, had $2.1 billion in federal funding frozen or placed under review. After the administration restored the funding, Pennsylvania Gov. Josh Shapiro said, “The federal government entered into agreements with state government agencies to get those dollars out into people’s communities. Those agreements are binding. To put it simply: A deal is a deal.” Yet what if a deal isn’t a deal? What does that do to an economy wherein business, state and local governments, and working families need to plan ahead? Those aren’t rhetorical questions: This degree of uncertainty, coupled with the inflationary impacts of sweeping tariffs, is toxic for sentiment and confidence first, followed by investment, jobs and growth next. It’s too early to know if we’re heading in that dark direction. But there are clear signs for concern.
Jared Bernstein was chair of President Joe Biden's Council of Economic Advisers. 
