U.S. consumer confidence plunges amid fears of recession and rising inflation

In February 2025, the Consumer Confidence Index in the United States experienced a significant drop, falling to 98.3 from 105.3 in January. This marked the largest decline in consumer confidence in over four years, with economists predicting a reading of 103. Concerns regarding inflation and the potential for a trade war under President Donald Trump contributed to this downturn. The index indicates that consumers are increasingly pessimistic about their economic outlook, with worries about business conditions and future job opportunities affecting their sentiment. This decline in consumer confidence coincides with rising inflation expectations, which reached six percent in February—a notable increase from 5.2 percent the previous month. Such inflation levels are markedly above the Federal Reserve's target of two percent. The confidence index’s drop was accompanied by heightened mentions of trade and tariffs, reflecting a sense of unease among consumers regarding the current political climate and its potential economic repercussions. Many perceive impending tariffs against U.S. trading partners as inevitable, which exacerbates their mounting anxiety. In addition to overall falling confidence, specific indices within the survey pointed to increasing worry among consumers. The Expectations Index, a gauge of Americans’ short-term outlook for income and jobs, plummeted by 9.3 points — the first instance since June 2024 that it has dipped below a recessionary threshold. Despite these negative sentiments, some consumers reported an improvement in their perception of current conditions, with a slight uptick in those viewing the labor market positively. However, the overall picture remains grim, as many consumers predict a recession in the near future, which could lead to reduced consumer spending—a critical component of the U.S. economy. The decline in consumer confidence is particularly troubling given that consumer spending constitutes nearly two-thirds of U.S. economic activity. Retail sales had already recorded a notable decrease of 0.9% in January, attributed in part to adverse weather impacting vehicle sales. The sharp drops in consumer sentiment and spending emphasize the growing unease about U.S. economic conditions, suggesting that unless a positive shift occurs, the nation may face more challenging economic times ahead.