Consumer Confidence During Uncertainty

Introduction

In times of uncertainty, consumer sentiment becomes especially volatile, reflecting the collective anxiety—or optimism—felt by the public.

Over the past two decades, the world has witnessed a series of confidence-shattering events: the global financial crisis, the COVID-19 pandemic, trade wars, rising inflation, and geopolitical conflict. Yet, even amid these tremors, the way consumers respond has evolved, driven by factors such as expectations, inflation outlooks, policy responses, and labor market conditions.

This report dives deep into recent consumer confidence trends, drawing from key indices, policy shifts, and business sentiment, while anchoring the analysis in the complex landscape of 2024–2025. Tariffs, inflation expectations, and economic policy uncertainty dominate the narrative, shaping how consumers and businesses perceive and act in an economy riddled with unpredictability.

Consumer Confidence in OECD Countries: Stabilization After Turbulence

Consumer confidence across OECD countries has demonstrated resilience over the long term, though not without sharp dips in times of global stress. As seen in the OECD Consumer Confidence Index, the aftermath of the 2008 financial crisis saw a notable dip, followed by a slow, steady recovery through the 2010s. Confidence peaked between 2017 and 2019 before plunging drastically in early 2020 due to the COVID-19 pandemic. It briefly rebounded in late 2020 but experienced multiple sharp declines since then.

The index has fluctuated wildly since early 2020, with peaks correlating with periods of economic reopening and dips aligning with renewed uncertainty—whether due to virus variants, inflation concerns, or geopolitical instability. Notably, while recent readings have shown modest improvement, they remain below pre-pandemic levels, indicating lingering consumer hesitancy.

The OECD average recently hovered slightly below 100, the long-term average, signaling a cautious but stabilizing outlook. Consumers are still not exuberant, and the proximity of the index to the baseline average shows how challenging it is to rebuild confidence after repeated economic shocks.

US Consumer Sentiment: A Sharp Decline Amid Inflation and Tariffs

In stark contrast to the more stable OECD trendline, US consumer sentiment—tracked by the University of Michigan’s Consumer Sentiment Index—has plunged significantly since 2021. Once above 100, the index now registers below 60, indicating historic lows in consumer mood.

This drop in sentiment reflects a toxic blend of rising prices, political instability, and aggressive trade measures under the Trump administration. Consumers are increasingly pessimistic about both their current situation and future prospects. The data also reveals sharp volatility since early 2022, suggesting that even fleeting improvements—perhaps driven by short-term policy relief or good news—have not been enough to sustain optimism.

A key driver of this pessimism is inflation. While employment remains relatively stable and GDP growth, albeit sluggish, is positive, the perception of declining real wages and purchasing power is deeply rooted. As consumer sentiment continues to deteriorate, it undercuts economic growth by reducing household consumption and triggering a wait-and-see approach to big-ticket purchases and investments.

Inflation Expectations: The Silent Confidence Killer

Few forces undermine consumer confidence more than rising inflation expectations. As observed in the Inflation Expectation Index from the University of Michigan, inflation expectations for 2025 have doubled compared to previous levels. At the start of 2024, expectations sat around 3.2%, but they have since soared to over 6.5%—a staggering 100% increase.

Inflation is not just a headline number; it erodes trust in the stability of the economy. When consumers expect prices to keep rising, they begin to alter their behaviors—delaying purchases, tightening budgets, and investing less. This creates a self-fulfilling cycle, where lower spending dampens business revenues, reduces hiring, and further drives down confidence.

While inflation has been largely attributed to tariff-induced price hikes, energy costs, and supply chain disruptions, consumers largely point fingers at protectionist trade policies. The Trump administration's decision to reinstitute broad tariffs across nearly 100 countries, particularly targeting China, has only exacerbated these fears.

Economic Confidence in G7 Countries: Long-Term Damage Since 2020

The Ipsos Economic Confidence Index for G7 countries offers another dimension to the story. Between 2014 and 2019, consumer economic confidence in G7 economies steadily rose, stabilizing above 60%. However, the pandemic-triggered crash in 2020 brought confidence levels down by more than 20 percentage points.

Since mid-2020, the recovery in G7 economic confidence has been sluggish and uneven. Despite periods of slight rebounds, confidence remains significantly below pre-pandemic levels. This indicates a deep structural impact on consumer psychology, driven by concerns about job security, inflation, and political uncertainty.

Moreover, the resurgence of trade conflicts and volatility in global markets have complicated the recovery process. Governments in the G7 have responded with mixed policies—some emphasizing protectionism and industrial reshoring, while others continue advocating open trade. For consumers, this lack of cohesion adds yet another layer of unpredictability.

Tariffs: The Historical Spike That Shook Confidence

A significant factor contributing to the consumer unease has been the unprecedented spike in US tariffs. As shown in historical data from the Tax Foundation, the US average effective tariff rate jumped from just 2.5% in 2024 to 14.5% in 2025, the highest level since 1938. Such a sharp increase hasn’t been seen in nearly 90 years.

These tariffs are not just abstract numbers—they translate directly into price increases for goods ranging from electronics and clothing to industrial inputs. The Trump administration’s sweeping trade actions, particularly against China, have led to immediate increases in consumer prices and created logistical complications for businesses reliant on global supply chains.

As of April 9, the newly imposed tariffs were expected to generate $206.6 billion in federal revenue and reduce imports by 30% in 2025. While beneficial for government coffers, the consumer-facing consequences include higher retail prices and reduced product variety. Small businesses, many of whom rely on affordable imports, have expressed concern that tariffs could squeeze their already-tight margins.

The Conference Board’s Confidence Report: Warning Signs Ahead

The July reading of The Conference Board’s Consumer Confidence Index confirms the fragile mood among US consumers. While there was a modest uptick in the headline number—from 95.2 in June to 97.2 in July—it masks deeper concerns. The Present Situation Index fell to 131.5, while the Expectations Index rose slightly to 74.4, still well below the recession-warning threshold of 80.

Stephanie Guichard of The Conference Board emphasized that while consumers are slightly less pessimistic than in April, worries about the economy remain elevated. Notably, the survey responses show that tariffs and inflation dominate consumer concerns. These findings are backed by a decline in perceptions of job availability, with nearly 19% of respondents saying that jobs are hard to find—the worst reading since March 2021.

In April, the Consumer Confidence Index dropped to 86, the lowest since May 2020. The accompanying drop in the Expectations Index to 54.4 signaled a major decline in short-term optimism. This collapse in confidence came in the wake of President Trump’s announcement of new protectionist trade measures on April 2.

Small Business Sentiment: A Mixed Bag

Interestingly, while consumer confidence dipped significantly in Q2 2025, small business sentiment showed signs of resilience in Q3. According to the CNBC|SurveyMonkey Small Business Confidence Index, 46% of business owners rated the economy as “excellent” or “good” in July, up from 30% in April.

This uptick suggests that the negative impacts of tariffs, while significant, were less damaging than initially feared. For instance, concerns over tariffs dropped from 59% in Q2 to 54% in Q3. Similarly, fewer business owners expected the tariffs to affect their operations—59% in Q3 compared to 66% in Q2.

Inflation, however, remained the top concern. Even though a growing portion (32%) of business owners believed inflation had peaked, up from 27% in Q2, a sizable 66% still expected prices to rise. Many acknowledged that while they had adjusted to the first wave of tariff impacts, any additional shocks could be destabilizing.

Economic Policy Uncertainty: Fueling the Fire

Overlaying all these trends is a sharp spike in the Economic Policy Uncertainty Index. As of mid-2025, the index has reached levels not seen since the onset of the COVID-19 pandemic and the 2008 financial crisis. Policy shifts, trade conflicts, and budget uncertainty have all added to the current turbulence.

Periods of high policy uncertainty directly correlate with declines in consumer confidence. When households are unsure of how government actions will affect their incomes, taxes, and employment prospects, they tend to retrench spending and adopt a more cautious financial posture.

Trump’s erratic trade policies—sudden tariff announcements, retaliation threats, and policy reversals—have significantly contributed to this uncertainty. The market’s struggle to anticipate future regulatory conditions has also impacted investment decisions, hiring, and product pricing, creating a climate of fear.

Looking Ahead: Hopeful Stabilization or Prolonged Instability?

Despite the current turbulence, there are glimmers of hope. The slight uptick in both the Conference Board’s Expectations Index and small business confidence suggests that some consumers and business owners believe the worst may be behind them. However, optimism remains fragile.

The average US tariff rate may decline if trade relations stabilize or if more exemptions are granted. Inflation expectations might moderate if wage growth recovers and supply chains normalize. Yet, much depends on political will and international cooperation—both of which remain unpredictable.

For now, the interplay of inflation, tariffs, job concerns, and policy ambiguity continues to suppress consumer confidence. The longer these pressures persist, the more deeply rooted consumer caution becomes. Rebuilding confidence will require consistent, transparent policy, economic stability, and a return to predictability in trade.

Conclusion

Consumer confidence during uncertainty reflects not only economic realities but also the psychological toll of unpredictability. The data reveals that while pockets of resilience exist, consumers remain wary—wary of inflation, wary of political decision-making, and wary of future financial security.

From the highest tariff rates in nearly a century to historic lows in consumer sentiment, the United States—and much of the global economy—stands at a precarious crossroads. The coming months will determine whether stabilization can take root or whether new shocks will plunge confidence to deeper lows.

Sources & References

Baker, Scott R., Bloom, Nick and Davis, Steven J., Economic Policy Uncertainty Index for United States [USEPUINDXD], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/USEPUINDXD, August 14, 2025.

International Banker. (2025). Despite Recent Improvements, Tariffs Continue to Weigh on US Consumer and Business Confidence. https://internationalbanker.com/finance/despite-recent-improvements-tariffs-continue-to-weigh-on-us-consumer-and-business-confidence/ 

Ipsos. (2025). Economic and Consumer Confidence and Inflation. https://www.ipsos.com/en/global-opinion-polls/economic-and-consumer-confidence-and-inflation 

OECD. (2025). Consumer confidence index (CCI). https://www.oecd.org/en/data/indicators/consumer-confidence-index-cci.html?oecdcontrol-b2a0dbca4d-var3=2008-01&oecdcontrol-b2a0dbca4d-var4=2024-12&oecdcontrol-cf46a27224-var1=USA 

University of Michigan, University of Michigan: Consumer Sentiment [UMCSENT], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/UMCSENT, August 14, 2025.

U.S. Bureau of Labor Statistics, Consumer Price Index for All Urban Consumers: All Items in U.S. City Average [CPIAUCSL], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/CPIAUCSL, August 14, 2025.

Visual Capitalist. (2025). Chart: The Average U.S. Tariff Rate (1890-2025). https://www.visualcapitalist.com/the-average-u-s-tariff-rate-since-1890/