Economic sentiment declines as tariffs mount

The Penta-CivicScience Economic Sentiment Index (ESI) decreased 0.3 points to 32.9, during a two-week stretch dominated by news coverage of President Donald Trump’s worldwide, “reciprocal tariffs.”

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Three of the ESI’s five indicators decreased during this two-week period. Confidence in buying a new home decreased the most, falling 1.6 points to 22.6. 

—Confidence in finding a new job decreased 0.8 points to 30.5.
—Confidence in the overall U.S. economy decreased 0.4 points to 35.9.
—Confidence in making a major purchase increased 0.5 points to 24.3.
—Confidence in personal finances increased 0.6 points to 51.1.

The news cycle over the past two weeks has paid extraordinary attention to tariffs and fears of a global trade war. On March 26, President Trump announced a 25 percent tariff on imported cars and car parts. The White House claimed that this move will strengthen U.S. manufacturing, though analysts at Morgan Stanley estimate that this tariff could raise the average car price for consumers by $6,000.

On April 2, President Trump declared “Liberation Day” for U.S. trade policy as he announced a 10 percent tariff on imports from all countries into the U.S. with additional sanctions on countries that have large trade deficits or other purported trade distortions with the U.S. Notably, goods from the European Union will face a 20 percent tariff and imports from China will face an additional 34 percent tariff. President Trump justified the tariffs, stating that “If you want your tariff rate to be zero then you build your product right here in America.” 

Following Trump’s “Liberation Day” announcement, many countries have signaled that they will impose retaliatory tariffs on the U.S. On April 4, China announced a 34 percent reciprocal tariff on the U.S., which led President Trump to threaten an additional 50 percent tariff against the country should it not withdraw its 34 percent reciprocal sanction. European Commission President Ursula von der Leyen offered a “zero-for-zero” tariff deal for industrial goods with the U.S. on April 7 to avoid a trade war. Von der Leyen stated, “We stand ready to negotiate with the U.S.” but also noted that retaliation is not out of the picture, stating, “We are also prepared to respond through countermeasures and defend our interests.”

The tariff news sent shockwaves through the economy. On Friday, April 4, the Dow Jones Industrial Average dropped 5.5 percent, and the S&P 500 closed 5.9 percent down. This marked the Dow’s largest decline since June 2020. Federal Reserve Chair Jerome Powell warned that new tariffs are, “significantly larger than expected” and that, “The same is likely to be true of the economic effects, which will include higher inflation and slower growth.” This renewed economic uncertainty has reignited discussions about the possibility of a recession. Goldman Sachs raised its estimate of the likelihood that the U.S. will enter a recession in the next year to 35 percent, up from 20 percent. In contrast, the International Monetary Fund (IMF) expects a slowdown but does not anticipate a recession. IMF spokeswoman Julie Kozack stated that “Large policy shifts have been announced and the incoming data is signaling a slowdown in economic activity” but noted that, “[a] recession is not part of our baseline.”

In other economic news, the U.S. Bureau of Labor Statistics (BLS) released the March Jobs Report which showed that the labor market added 228,000 jobs in March, coming in well above economists’ predictions. Meanwhile, the unemployment rate ticked up 0.1 percentage points to 4.2 percent. BLS stated that this solid job growth can be attributed to gains in healthcare, social assistance, transportation and warehousing, and retail trade. 

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The ESI’s three-day moving average began this two-week stretch at 34.8 on March 26. It then oscillated between decreasing and increasing, flatlining at 32.1 on March 31 and April 1 before rising to a high of 35.0 on April 3. However, the three-day moving average then began declining precipitously in-line with the announcement of retaliatory tariffs by the U.S., hitting a low of 31.0 on April 8 to close out the session. 

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The next release of the ESI will be on Wednesday, April 23, 2025.

Economic sentiment continues its 2025 decline

The latest biweekly reading of the Penta-CivicScience Economic Sentiment Index (ESI) fell by 0.3 points to 33.2. This marks the ESI’s fourth consecutive period of decline. 

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Two of the ESI’s five indicators decreased during this two-week period. Confidence in personal finances decreased the most, falling 2.9 points to 50.5.

—Confidence in the overall U.S. economy decreased 0.8 points to 36.3.

—Confidence in making a major purchase increased 0.2 points to 23.8.

—Confidence in finding a new job increased 1.0 point to 31.3.

—Confidence in buying a new home increased 1.4 points to 24.2

The Federal Reserve held interest rates steady within the range of 4.25 to 4.5 percent for a second straight meeting. In its statement, the Federal Open Markets Committee (FOMC) said, “Uncertainty around the economic outlook has increased.” Fed Chair Jerome Powell echoed this, saying that likely due to tariffs, “further progress may be delayed” on returning inflation to the Fed’s 2 percent target. FOMC members also raised their forecasts for core inflation this year while also predicting lower economic growth. Nevertheless, Fed officials continued to predict two rate cuts of 25 basis points each for this year.

The February Consumer Price Index (CPI) showed a lower-than-expected inflation rate of 2.8 percent. Both the overall CPI and the core CPI, which excludes volatile food and energy prices, increased by 0.2 percent for the month, falling slightly below economists’ forecasts. This moderation in price increases, particularly in shelter costs, suggests a positive trend in controlling inflation. However, uncertainties surrounding tariffs and their potential impact on prices remain a key concern.

The U.S. Census Bureau reported that retail sales rose just 0.2 percent in February, falling below the estimated 0.6 percent rise in sales projected by economists polled by The Wall Street Journal. January retail sales were also revised downward to a decline of 1.2 percent, the largest decline in monthly sales since 2021. Declining sales at department stores and bars and restaurants may indicate that consumers are cutting back on nice-to-have spending amidst broader economic uncertainty in the U.S.

On March 12, the European Union announced that retaliatory tariffs on U.S. goods would take effect on April 1. These tariffs are set to impact goods produced in Republican-leaning states, including Kentucky bourbon, agricultural products, jeans, and Harley-Davidson motorcycles. In response, President Donald Trump threatened a 200 percent tariff on wine and liquor from the EU. The EU’s tariffs were later delayed to mid-April with a European Commission spokesperson telling CNN that the delay was to ensure, “additional time for discussions with the U.S. administration.” 

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The ESI’s three-day moving average began this two-week stretch at 32.3 on March 12. It then rose consistently, hitting 33.8 on March 18 before trending downward to a low of 32.2 on March 21. The three-day moving average then rose and fell before rising again to a high of 34.1 on March 25 to close out the session.

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The next release of the ESI will be on Wednesday, April 9, 2025.

Economic sentiment declines amid escalating trade tensions

The latest biweekly reading of the Penta-CivicScience Economic Sentiment Index (ESI) fell sharply by 1.4 points to 33.5, further deepening the ongoing downturn in consumer sentiment this year. 

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Four of the ESI’s five indicators decreased during this two-week period. Confidence in finding a new job decreased the most, falling 3.5 points to 30.3.

—Confidence in the overall U.S. economy decreased 2.1 points to 37.1.
—Confidence in personal finances decreased 1.6 points to 53.4. 
—Confidence in buying a new home decreased 0.1 points to 22.8.
—Confidence in making a major purchase remained unchanged at 23.6.

On March 3, President Donald Trump announced a 25 percent tariff on imports from Canada and Mexico, citing concerns over fentanyl trafficking and unauthorized immigration. This action prompted retaliatory tariffs from both countries. The president granted a one-month exemption to tariffs affecting the Big Three U.S. automakers—Ford, General Motors, and Stellantis—on March 5 and then a wider postponement of tariffs on imports from the U.S.’s neighbors on March 6.

Later on March 11, President Trump announced that the U.S. would be raising tariffs on steel and aluminum imports from Canada to 50 percent beginning March 12. This would have been in addition to previously planned 25 percent tariffs on steel and aluminum imports from all countries. However, the president reversed course later that day after Ontario agreed to halt its 25 percent export tax on electricity coming into Michigan, Minnesota, and New York. The original 25 percent tariff on steel and aluminum imports did, however, go into effect. 

The stock market has reacted negatively to these shifting U.S. tariff policies. By March 10, the S&P 500 had wiped all gains made since November 2024. ​Stocks slipped further on March 11, with the S&P 500 index falling by 0.76 percent, and the Nasdaq composite index dropping 0.18 percent, underscoring investor concerns about potential economic disruptions resulting from trade disputes.

The Federal Reserve Bank of Atlanta’s GDPNow estimate, a preliminary, real-time model that provides a running estimate of the current quarter’s growth in economic output based on available economic data, projected a slowdown in the U.S. economy for the first time this quarter on February 28. The model’s estimate for annualized gross domestic product (GDP) growth predicted a contraction of -1.5 percent on February 28, reflecting weaker-than-expected trade and consumer spending data. The estimate has since decreased further to -2.4 percent on March 6. If these estimates for negative GDP growth come to pass, it would be the first quarterly contraction of the U.S. economy since early 2022. In the wake of these data and broader economic uncertainty, President Trump declined to rule out a recession in 2025, telling Fox News’ Maria Bartiromo, “I hate to predict things like that. There is a period of transition because what we’re doing is very big. We’re bringing wealth back to America. That’s a big thing… it takes a little time, but I think it should be great for us.”

The U.S. Bureau of Labor Statistics’ February Jobs Report reported that U.S. employers added 151,000 jobs last month, coming in slightly below economists’ expectations. The unemployment rate ticked upward slightly from 4.0 percent to 4.1 percent. Federal government jobs declined by 10,000 since the previous month, likely due to the federal hiring freeze. This reflects the first decline in federal employment since June 2022. Some analysts have noted, however, that job losses from the Trump administration’s efforts to reduce the federal workforce are not yet accounted for in the jobs report. 

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The ESI’s three-day moving average began this two-week stretch at 33.8 on February 26. It then rose slightly, hitting a high of 35.1 on March 1 before trending downward to 32.8 on March 3. The three-day moving average then rose back up to 34.3 on March 4 before falling again to a low of 32.3 on March 7. The average then rose slightly to 33.0 on March 11 to close out the session.

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The next release of the ESI will be on Wednesday, March 26, 2025.

Economic sentiment declines further in February

Following a substantial decline last period, the Penta-CivicScience Economic Sentiment Index (ESI) fell by 0.8 points to 34.9, furthering a notable decline in confidence in the U.S. economy in 2025. 

Three of the ESI’s five indicators decreased during this two-week period. Confidence in making a major purchase decreased the most, falling 2.4 points to 23.6.

—Confidence in finding a new job decreased 1.9 points to 33.8.
—Confidence in the overall U.S. economy decreased 1.4 points to 39.2.
—Confidence in personal finances increased 0.8 points to 55.0.
—Confidence in buying a new home increased 0.8 points to 22.9.

The Chicago Fed National Activity Index (CFNAI), which gauges economic activity and inflationary pressure, decreased to -0.03 in January, down from +0.18 in December. In January, employment-related indicators saw gains, whereas production-related and personal consumption and housing indicators declined compared to December. Meanwhile, the CFNAI’s three-month moving average increased to +0.03 in January from -0.13 in December.

Data from the National Association of Realtors (NAR) show that existing home sales fell 4.9 percent in January compared to December, though year-over-year sales increased 2.0 percent. NAR Chief Economist Lawrence Yun stated, “Mortgage rates have refused to budge for several months despite multiple rounds of short-term interest rate cuts by the Federal Reserve” and that “When combined with elevated home prices, housing affordability remains a major challenge.” Meanwhile, total housing inventory increased 3.5 percent from December and 16.8 percent year-over-year. The Wall Street Journal reports that this supply of homes is shifting power to home buyers, with recent data from Redfin showing that the average U.S. home is selling for 1.8 percent below the asking price.

President Donald Trump signed a presidential memorandum directing his administration to develop a “fair and reciprocal plan” for international trade. The directive calls for the creation of a plan to increase U.S. tariffs in response to other countries’ trade barriers and other policies including tariffs, subsidies for domestic industries, exchange rates, and value-added taxes. The Trump Administration later announced additional tariffs of around 25 percent on imports of automobiles, pharmaceuticals, and semiconductors. 

The U.S. Census Bureau reported that retail sales fell drastically in January, decreasing by 0.9 percent from the previous month. This represents this indicator’s largest month-to-month drop in nearly two years. However, Robert Frick, corporate economist at Navy Federal Credit Union told Reuters, “The drop was dramatic, but several mitigating factors show there’s no cause for alarm.” These factors included a large upward revision to 0.7 percent from 0.4 percent for December, as well as seasonal fluctuations that often occur at the beginning of the year. 

The stock market also posted large declines following declining consumer sentiment and ongoing fears about a trade war. The S&P 500 fell by 1.7 percent last week and the Nasdaq Composite declined by over 2 percent. These fears are amplified by investor concerns about the Federal Reserve’s monetary policy. The Fed has signaled that further rate cuts are not expected given inflation remains stubbornly above the Fed’s 2 percent target. 

The ESI’s three-day moving average began this two-week stretch at a high of 38.3 on February 12. It then oscillated, trending downward before reaching a low of 32.6 on February 20. The three-day moving average then rose back up to 36.2 on February 23 before falling to 35.3 on February 25 to close out the session.

The next release of the ESI will be on Wednesday, March 12, 2025.

Economic sentiment posts its sharpest decline in over a year

Following a slight increase last period, the Penta-CivicScience Economic Sentiment Index (ESI) fell by 3.7 points to 35.7, propelled by a major decline in confidence in the U.S. economy. This represents the ESI’s largest decrease in over a year.

Four of the ESI’s five indicators decreased during this two-week period. Confidence in the overall U.S. economy decreased the most, falling 7.6 points to 40.6. This represents this indicator’s largest, single period decline since November 2020.

—Confidence in finding a new job decreased 5.0 points to 45.7.
—Confidence in personal finances decreased 5.0 points to 54.2. 
—Confidence in making a major purchase decreased 1.4 points to 26.0.
—Confidence in buying a new home increased 0.8 points to 22.1.

The advance estimate of fourth-quarter GDP released by the Commerce Department shows the U.S. economy grew by 2.3 percent from October to December 2024, driven by both consumer and government spending. This represents slower growth than in the third quarter of 2024, when the economy expanded by 3.1 percent, and it fell short of the 2.5 percent increase projected by economists polled by Dow Jones.

The January jobs report showed an increase of 143,000 jobs, falling short of economists’ projections of 167,000 and significantly lower than the upwardly revised 307,000 jobs added in December. Meanwhile, the unemployment rate edged down to 4.0 percent from 4.1 percent in the previous month. According to the Bureau of Labor Statistics, job growth was driven by gains in healthcare, retail trade, and social assistance. Government employment also saw gains, adding 32,000 jobs in January. These gains came before at least 65,000 federal workers accepted the Office of Personnel Management’s recent ‘Fork in the Road’ email offer to leave their positions while continuing to receive pay and benefits through late September. Economists are questioning the impact that these resignations will have on the national labor market. Additionally, the legal status of the deferred resignation program remains uncertain after a federal judge in Massachusetts indefinitely delayed the deadline for federal employees to resign.

President Donald Trump signed two proclamations imposing 25 percent tariffs on both steel and aluminum. This move came after his decision to temporarily delay tariffs on Canada and Mexico, though both countries are expected to be impacted by the metal tariffs, as both countries rank among the top three suppliers of steel to the U.S., with Canada also being the largest aluminum exporter to the country. Trump defended the tariffs as a way to boost domestic production, stating, “Our nation requires steel and aluminum to be made in America, not in foreign lands…” However, experts have cautioned that the tariffs could drive up costs for consumers. President Trump also recently instituted a 10 percent tariff on all goods from China, on top of existing tariffs already in place, which led China to institute retaliatory tariffs of 10 to 15 percent on select U.S. exports, including fossil fuels, farm machinery, and large-engine cars.

Federal Reserve Chair Jerome Powell appeared before the Senate Banking Committee on February 11 and discussed the Fed’s ongoing efforts to bring inflation under control. Regarding future rate cuts, Powell said, “we think our policy rate is in a good place, and we don’t see any reason to be in a hurry to reduce it further.” Powell’s remarks came one day ahead of new inflation data which will likely influence the Fed’s approach to future rate decisions. The January Consumer Price Index (CPI) report showed that consumer prices increased 0.5 percent in January and have risen 3.0 percent annually. This represents the CPI’s largest month-over-month increase since September 2023. This inflation report was hotly anticipated as many businesses often choose the beginning of the year as the time to raise their prices to account for rising input costs.

The ESI’s three-day moving average began this two-week stretch at a high of 39.7 on January 29. It then trended downward to 34.5 on February 1 and rose slightly before falling to a low of 33.4 on February 4. The three-day moving average then rose to 37.1 on February 7 and fell back down before rising to 36.5 on February 11 to close out the session.

The next release of the ESI will be on Wednesday, February 26, 2025.