Morgan Stanley survey: U.S. consumer sentiment is declining

Investing.com -- Morgan Stanley (NYSE:MS)’s latest survey shows a significant drop in U.S. consumer sentiment, marking the first negative reading since June 2024, as concerns over tariffs and political issues weigh on the public’s economic outlook.

The survey, which polled approximately 2,000 U.S. consumers, showed a stark divide in sentiment along political lines, with liberals displaying a more pessimistic view than conservatives.

The decline in sentiment does not immediately signal a reduction in consumer spending, although Morgan Stanley economists anticipate a slowdown in spending growth due to the effects of immigration and tariffs. Despite the drop, spending intentions remain robust, suggesting that the negative sentiment has yet to impact consumer spending plans.

Similar trends have been observed in other major surveys, such as those conducted by the University of Michigan and the Conference Board, both of which have reported comparable declines in consumer confidence.

The University of Michigan’s data shows a marked contrast in expectations between Democrats and Republicans since November, with a 44-point decrease for Democrats and a 43-point increase for Republicans.

Policy changes have also been cited as contributing factors to the latest sentiment changes, according to Morgan Stanley.

The Conference Board’s February press release highlighted a significant rise in mentions of trade and tariffs, with responses heavily focused on the current administration and its policies. Meanwhile, the University of Michigan’s February release pointed to a notable decline in buying conditions for durable goods, attributing it partly to fears of impending tariff-induced price hikes.

Overall, consumers continue to be supported by “solid growth in labor income and accumulated wealth,” Morgan Stanley strategists said, however, they predict a deceleration in the growth of both income and wealth this year.

“Consumer spending growth should therefore slow as well,” strategists added. “These factors will also likely impact sentiment, but it is the changes in hard data driving the slowdown we expect, rather than the change in sentiment itself.”