Consumers Breathe Sigh of Relief on U.S.-China Tariff Truce

A temporary truce in the trade war between the U.S. and China was a big relief for consumers, who said they felt more confident in May for the first time in five months. 

The Conference Board’s Consumer Confidence survey increased by 12.3 points in May to 98.0, halting a slide. Public attitudes about the economy soured so far this year as President Donald Trump began announcing a wide-ranging set of tariffs.  The jump surprised economists surveyed by The Wall Street Journal and Dow Jones Newswires, who forecast only a slight improvement from April’s reading of 85.7.

The May 12 announcement of a temporary reduction in tariffs between the U.S. and China drove the rebound in consumers’ outlook. For now, import taxes on goods from China are set at 30%, down from the 145% President Trump had set earlier this year. China also reduced its tariffs on U.S. products in exchange. Trump said the tariff truce would last for 90 days while the two sides negotiate.

“This rebound is a welcome step in the right direction, but like the deal with China, it may prove only a temporary reprieve until we get long-term clarity on trade policy,” wrote Wells Fargo economists Tim Quinlan and Jeremiah Kohl.

Consumer Expectations Rise, But Inflation Threats Remain

Consumers’ expectations for income, business and labor market conditions in the near term surged higher to 72.8, but still remained below the threshold of 80 that can often signal a recession is near.

“Consumers were less pessimistic about business conditions and job availability over the next six months and regained optimism about future income prospects,” said Stephanie Guichard, senior economist for global indicators at The Conference Board.

The survey found that May’s rebound covered all age, income and political groups. It also showed that consumers are less worried about price increases due to tariffs, as year-ahead inflation expectations dropped to 6.5%. However, economists warned that inflation from tariffs is still likely and could further chip away at consumer confidence in the future.

“Americans have reason to be happy given the rollback in tariffs, especially with China,” wrote Navy Federal Credit Union economist Robert Frick. “But when prices start rising from existing tariffs in a month or two, it will be a sobering reminder that a new inflation fight has just begun.”