US Consumer Confidence Plunges as Tariff Impact Bites

Global markets received a sobering reality check on Tuesday as fresh data revealed that US consumer confidence has deteriorated significantly in December. The index fell to 89.1, marking its fifth consecutive monthly decline and reaching its lowest level since April, when President Donald Trump initiated his aggressive tariff regime on US trading partners. This persistent erosion in sentiment suggests that the twin pressures of high prices and trade war anxiety are finally taking a toll on the American psyche, with potential ripple effects for global equity and bond markets in 2026.

The latest data from The Conference Board paints a complex picture for investors. While the headline number is concerning, the details are even more telling. The measure of Americans’ short-term expectations regarding income, business conditions, and the labour market held steady at 70.7. However, this figure remains stubbornly below 80—a threshold that historically signals a recession is on the horizon. This specific gauge has now languished in "recession territory" for 11 consecutive months.

Furthermore, consumers’ assessment of their current economic situation plummeted by 9.5 points to 116.8. Write-in responses to the survey highlighted that despite political rhetoric dismissing inflation as a "hoax", high prices and tariffs remain the primary sources of anxiety for households. For capital markets, this divergence between political messaging and consumer reality poses a risk to discretionary sector earnings in the coming quarter.

Perhaps the most critical data point for the Federal Reserve is the shifting perception of the job market. The percentage of consumers describing jobs as "plentiful" fell to 26.7 per cent, while those finding jobs "hard to get" rose to 20.8 per cent. This aligns with recent government reports showing the unemployment rate climbing to 4.6 per cent—the highest level since 2021.

Economists have described the current environment as a "low hire, low fire" state. Businesses, paralysed by uncertainty over trade policy and interest rates, are simply standing pat. Since March, monthly job creation has averaged a meagre 35,000, a steep drop from the 71,000 average seen in the preceding year. Federal Reserve Chair Jerome Powell has hinted that these figures could be revised even lower, adding pressure on the central bank to navigate a soft landing amidst deteriorating labour dynamics.

Despite the gloomy sentiment, the macroeconomic data offers a sharp contradiction. The US economy expanded at a robust 4.3 per cent annual rate in the third quarter. However, this backward-looking figure may be the high-water mark. Economists are already forecasting a significantly more sluggish fourth quarter, dampened by a potential government shutdown and the very pullback in consumer spending that the confidence data predicts.

Interestingly, while views on current family finances sank into negative territory for the first time in nearly four years, expectations for the future reached their most positive level since January. This suggests that while American households are feeling the pinch today, they remain optimistic that the current economic malaise—driven by tariffs and inflation—is transitory. For global investors, the key question for 2026 is whether this optimism is well-founded or if the "low hire" environment will eventually transition into broader layoffs.