April 14, 2025 – March and early April have signaled a growing concern around the conditions of the US economy. Small business optimism dropped below its long-term average, consumer sentiment fell for the fourth straight month, and initial jobless claims edged up. While inflation eased overall, employment uncertainties among consumers increased. With new global tariffs now in place, both businesses and consumers face an unknown economic road ahead.  

Small business optimism declines as economic outlook dims: In March, the NFIB Small Business Optimism Index fell by 3.3 points to 97.4, dipping below its 51-year average of 98. Small business owners expressed growing concerns regarding taxes, with 18% citing them as their top concern, growing two points from February. Additionally, future business optimism fell 16 points from the previous month, recording the third consecutive monthly decline and the largest drop since December 2020. While fewer business owners raised prices in March, those who planned for future price hikes increased to the highest level since March 2024. The survey was conducted before the Trump administration announced sweeping global tariffs on April 2nd, so it is likely that we could see a continued decrease in optimism in the coming months.

Inflation eases more than expected: The Consumer Price Index (CPI) fell at a seasonally adjusted rate of 0.1% in March, according to the Bureau of Labor Statistics. The dip was the first month-over-month inflation drop since May 2020, putting the 12-month inflation rate at 2.4%, down from 2.8% in February. Gas prices dropped significantly in March by 6.3%, which was a primary contributing factor that helped offset overall inflation. In contrast, consumers’ grocery bills rose, with food prices increasing 0.4% from the prior month and 3.0% over the year. Core inflation, which excludes food and energy, edged up just 0.1% from February and 2.8% over the past 12 months and registered the smallest annual increase since March 2021. While prices for personal care, medical care, education, apparel, and new vehicles increased, notable declines were seen in airline fares, used vehicles, motor vehicle insurance, and recreation. Despite the encouraging numbers from the March CPI report, high inflation should be anticipated in the months ahead as global tariffs implemented earlier this month could begin to put upward pressures on prices of many consumer goods.   

Initial jobless claims increase but remain at low levels for now: Initial applications for unemployment benefits rose by 4,000 to a seasonally adjusted 223,000 applications for the week ending April 5, the Department of Labor reported on Thursday. Despite the uptick in initial claims, continuing claims dropped by 43,000 to 1.85 million in the last week of March. While the labor market remains broadly healthy, the number of Americans filing for new employment claims may continue to increase as businesses adjust to the Trump administration’s tariff policies. The decline in continuing claims, nevertheless, is a sign that indicates the job market is still hanging on and we are seeing some progress in people securing a job after a period of unemployment.

Tariff uncertainty in the housing market: President Trump dramatically shifted his stance from last week, reducing his country-specific tariffs to a universal rate of 10% for all trade partners excluding China. The White House has since confirmed that China now faces a tariff rate of 145%. While Trump has excluded lumber, aluminum, copper, and steel from reciprocal tariffs, there is still uncertainty about future tariffs on these materials that are sourced outside of the United States. This has created uncertainty within the residential housing market, as prices of construction materials could go up, further affecting the price of homes. Financial markets, meanwhile, remained volatile last week and the 10-year Treasury yield experienced its biggest week-over-week increase since 1981. The average 30-year fixed mortgage rate jumped back above 7% on Friday but began to trend down again as of early Monday. With trade wars remaining the focal point and recession fears continue to linger, rates could fluctuate further in coming weeks.

Consumer sentiment slips on recession fears: The University of Michigan reported on Friday that consumer sentiment declined for the fourth consecutive month in April, dropping 11% from March and marking a more than 30% fall since December 2024. Consumers have noted multiple warning signs of a recession such as personal finances, inflation, incomes, expectations for business conditions, and labor markets deteriorating. Consumer uncertainties regarding employment have increased for the fifth consecutive month, in contrast to the past several years when strong spending was supported by strong income and labor markets. Inflation expectations also increased rapidly to 6.7% from 5.0% in February, the highest reading since 1981. We can expect a continued drop in consumer sentiment in the coming months with tariffs looming and uncertain market conditions.

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