Potential impact of Trump's trade war on jobs and inflation sends US consumer sentiment plunging

WASHINGTON (AP) — U.S. consumer sentiment plunged in April, the fourth consecutive month of declines, in a seemingly sharp rebuke of President Donald Trump's trade wars that have fueled anxiety over possible job losses and rising inflation.

The preliminary reading of the University of Michigan’s closely watched consumer sentiment index, released Friday, fell 11% on a monthly basis to 50.8, the lowest since the depths of the COVID-19 pandemic. Over the past year, sentiment has tumbled 34%.

The decline was “pervasive and unanimous across age, income, education, geographic region, and political affiliation,” said Joanne Hsu, director of the survey.

The share of respondents expecting unemployment to rise in the coming months increased for the fifth straight month and is now the highest since 2009 during the Great Recession.

While consumer sentiment is not always a reliable indicator of the overall economy, it has at times reflected shifting vibes in how the public feels about presidential leadership. Sentiment among Republicans has dropped 6% over the past month as Trump teased, then rolled out a series of aggressive tariffs, only to institute a 90-day pause of some import taxes Wednesday.

“Interestingly, President Trump appears to be getting much of the blame for much of the deterioration in sentiment with 67% of respondents saying the government is doing a ‘poor job’ on fighting inflation and unemployment,” said James Knightley, chief international economist at ING. “Only 18% say it is doing a ‘good job.’”

Asked at Friday's news briefing about the falling consumer sentiment, White House press secretary Karoline Leavitt said that the public should trust in Trump as he executes his tariffs plan.

“As he said, this is going to be a period of transition,” she said. “He wants consumers to trust in him, and they should trust in him.”

The result of the trade war drama so far is a baseline tariff on most countries of 10%, with imports from China getting taxed at a combined 145%. Goods from Canada and Mexico face tariffs of up to 25%, while imported autos, steel and aluminum are taxed at that same rate. China retaliated Wednesday with a 125% tariff on U.S. goods.

The Trump administration has suggested that it cut new trade agreements with more than 75 nations over a span of 90 days.

“We are doing really well on our TARIFF POLICY,” Trump said Friday on his social media site Truth Social. “Very exciting for America, and the World!!! It is moving along quickly.”

Eroding American confidence has also surfaced in the financial markets. Investors are selling off U.S. debt. The interest rate on the 10-year U.S. Treasury note was at 4.48% on Friday afternoon, up from roughly 4% at the start of the week. That suggests more economic instability ahead.

On Friday, the dollar slumped to a three-year low against the euro.

Larry Fink, CEO of the investment firm BlackRock, told CNBC that the U.S. economy is on the cusp of a downturn, if not already there.

“I think we’re very close, if not in, a recession now,” Fink said.

The Michigan sentiment survey found that people now expect long-term inflation to reach 4.4%, up from 4.1% last month, a move that may be of particular concern for the U.S. Federal Reserve. The Fed pays close attention to inflation expectations, because they can become self-fulfilling. If people expect prices to rise, they often take steps that can push up prices, such as accelerating purchases or seeking higher wages.

It's a sign that most of the public views as a blip data this week showing that consumer inflation declined in March to an annual rate of 2.4%. Most economists believe that, given the intensifying trade wars, inflation is likely to be reignited.

Americans’ inflation expectations over the next five years are now at the highest since 1991, according to Capital Economics, a forecasting firm.

“Households appear to have come to the same conclusion as markets: the tariffs will do lasting damage to the US economy,” Harry Chambers, assistant economist at Capital Economics, said in an email.

Consumer sentiment remains sharply divided by party, with the index for Democrats at 34.1 and Republicans at 81.9. Yet both recorded steep drops in April.

Sentiment among independents plunged to 46.8 from 55.7, and is sharply below its post-election peak of 70.2. The April reading among independents is now lower than it was at any point during Joe Biden's presidency.

Those inflation expectations have now jumped for several months. At a news conference last month, Fed Chair Jerome Powell said the University of Michigan's inflation expectations measure was an “outlier.” Market-based measures of inflation expectations, based on inflation-adjusted Treasury securities, have remained low, near the Fed's 2% target.

Typically, falling sentiment suggests that Americans will cut back on spending, though in recent years consumers have at times kept spending despite the gloom. Yet the fact that worries about employment are rising could lead to more caution by consumers.

“This lack of labor market confidence lies in sharp contrast to the past several years, when robust spending was supported primarily by strong labor markets and incomes,” Hsu said.

What makes this particular moment unique is that the back-and-forth over tariffs has created a degree of paralysis with hiring freezes and uncertainty.

“For everybody watching this process unfold, it’s causing a lot of anxiety because they don’t know how to make the right decisions when things change hourly,” said David French, senior vice president of government relations at the National Retail Federation.

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AP reporter Paul Wiseman contributed to this report.

FILE - The block M logo for the University of Michigan is displayed at the school's NCAA college football stadium in Ann Arbor, Mich., on Nov. 10, 2023. (AP Photo/Paul Sancya, File)

A person walks past a cluster of retail store signs in La Habra, Calif., Wednesday, April 2, 2025. (AP Photo/Jae C. Hong)

Customers shop refrigerators at a retail store in Glenview, Ill., Thursday, April 3, 2025. (AP Photo/Nam Y. Huh)

Customers shop televisions at a retail store in Glenview, Ill., Thursday, April 3, 2025. (AP Photo/Nam Y. Huh)

WASHINGTON (AP) —

American employers added a better-than-expected 177,000 jobs in April as the job market showed resilience in the face of President Donald Trump's trade wars.

Hiring was down slightly from a revised 185,000 in March and came in above economists’ expectations for a modest 135,000. The unemployment rate remained at a low 4.2%, the Labor Department reported Friday.

Trump’s aggressive and unpredictable policies – including massive import taxes – have clouded the outlook for the economy and the job market and raised fears that the American economy is headed toward recession.

But Friday's report showed the job market remains solid. “The labor market refuses to buckle in the face of trade war uncertainty,’’ Christopher Rupkey, chief economist at fwdbonds, a financial markets research firm. “Politicians can count their lucky stars that companies are holding on to their workers despite the storm clouds forming that could slow the economy further in the second half of the year.’’

Transportation and warehousing companies added 29,000 jobs last month, suggesting that companies have been stocking up before essential, imported goods are hit with a wave of new tariffs, driving prices higher. Healthcare companies added nearly 51,000 jobs and bars, restaurants almost 17,000 and construction firms 11,000. Factories lost 1,000 jobs.

Labor Department revisions shaved 58,000 jobs from February and March payrolls.

Average hourly earnings ticked up 0.2% from March and 3.8% from a year ago, nearing the 3.5% that economists view as consistent with the 2% inflation the Federal Reserve wants to see.

The report showed that 518,000 people entered the labor force, and the percentage of those working or looking for work ticked up slightly.

Trump’s massive taxes on imports to the U.S. are likely to raise costs for Americans and American businesses that depend on supplies from overseas. They also threaten to slow economic growth. His immigration crackdown threatens to make it more difficult for hotels, restaurants and construction firms to fill job openings. By purging federal workers and cancelling federal contracts, Elon Musk’s Department of Government Efficiency risks wiping out jobs inside the government and out.

Trump’s policies have shaken financial markets and frightened consumers. The Conference Board, a business group, reported Tuesday that Americans’ confidence in the economy fell for the fifth straight month to the lowest level since the onset of the COVID-19 pandemic.

Still, Bill Adams, chief economist at Comerica Bank, called the jobs report “reassuringly normal. The fears of a softer labor market due to tariff uncertainty went unrealized last month ... There are signs that businesses are reining in plans for hiring and capital spending and that consumers are turning more cautious toward discretionary spending.’’

But Adams noted that those cautious signs come from surveys of businesses and consumers and have not showed up so far in actual economic data.

American workers have at least one thing going for them. Despite the uncertainty about fallout from Trump’s policies, many employers don’t want to risk letting employees go – not after seeing how hard it was to bring people back from the massive but short-lived layoffs of the 2020 COVID-19 recession.

“They laid millions of these people off, and they had a hell of a time getting them back to work,’’ Boston College economist Brian Bethune said before Friday's report came out. "So for now, the unemployment rate and the number of people filing claims for jobless benefits every week remain low by historical standards.

The federal government’s workforce fell by 9,000 on top of 17,000 job losses in February and March, Still, the full effect of Musk's DOGE cuts may not be showing up yet. For one thing, Bethune noted, job cuts orders by the billionaire’s DOGE are still being challenged in court. For another, some of those leaving federal agencies were forced into early retirement and don’t show up in the Labor Department’s count of the unemployed.

After the jobs numbers were released, Trump repeated his call for the Federal Reserve to lower its benchmark short-term interest rate, which it raised to combat inflation. Trump said on social media platform Truth Social that there is “NO INFLATION” and “employment strong.”

Yet as long as the job market remains healthy, the Fed will likely stay on the sidelines as it takes time to evaluate the impact of tariffs. Fed chair Jerome Powell has underscored that the duties are likely to push up prices in the coming months, making the central bank wary of the potential for higher inflation.

The Fed typically fights inflation with higher interest rates, so it is unlikely to cut its key short-term rate anytime soon. It might change course and reduce rates if layoffs spiked and unemployment rose, but Friday’s report suggests that isn’t happening yet.

AP Economics Writer Christopher Rugaber contributed to this story.

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