US consumers more pessimistic on tariff costs, TransUnion says

A TransUnion survey indicates rising pessimism among U.S. consumers regarding their household finances, with 27% expressing negativity about the next 12 months, up from 21% in Q4. This increased pessimism correlates with tariff-related uncertainty, leading over half of respondents to cut discretionary spending and 23% to increase emergency savings. Inflation remains the top concern, and those worried about tariffs plan to increase borrowing through credit cards and other services, while recession fears are at a two-year high.

Analysis

A recent TransUnion survey of nearly 3,000 U.S. consumers conducted in May reveals a significant deterioration in household financial sentiment, with 27% expressing pessimism about the next 12 months, a notable increase from 21% in the fourth quarter. This heightened pessimism is strongly correlated with uncertainty stemming from tariffs, according to Charlie Wise, TransUnion's head of global research. Consequently, consumer behavior is shifting: over half of respondents reported reducing discretionary spending on items such as dining out, travel, and entertainment in the last three months, while 23% indicated they had increased their emergency savings. Inflation remains the predominant concern for 81% of those surveyed, and fears of a recession have reached their highest point in two years. Notably, consumers most anxious about tariffs also plan to increase their borrowing through credit cards, personal loans, and buy now, pay later services, signaling potential financial strain. The overall sentiment derived from this information is strongly negative, reflecting the consumer outlook.

Key Decisions for Investors

• Monitor consumer discretionary sector performance closely, as reduced spending intentions could pressure revenues and earnings for companies reliant on non-essential purchases.
• Evaluate positions in lending institutions, considering both the potential for increased loan demand from concerned consumers and the associated risks of deteriorating credit quality.
• Consider strategies that account for heightened inflation concerns and recession fears, potentially favoring defensive sectors or assets less correlated with economic slowdowns.
• Observe leading economic indicators and future consumer sentiment surveys for signs of confirmation or reversal of these pessimistic trends, particularly in relation to tariff impacts.