Concerns grow over the effects of Trump's tariff policy… 'Recession warnings' continue amid US consumption recovery

While United States consumer spending is still maintaining a robust trend thanks to wage increases and low unemployment rates, there is a warning from both inside and outside the financial sector that if President Trump's tariff policy continues, it may lead to an economic slowdown.

JP Morgan Chase's Chief Financial Officer Jeremy Barnum recently stated, "As long as the labor market remains strong, consumer credit will not be significantly shaken," expressing an optimistic stance. He added, "April indicators suggest some consumer spending was accelerated following the tariff announcement." He also noted that companies made moves to advertise their inventory in advance of tariff implementation.

A similar diagnosis came from other major banks. Bank of America's CFO Alastair Borthwick assessed, "Considering the current consumer signals, the United States economy is still in a good state." In fact, JP Morgan kept its card service net write-off rate at 3.6% last week, and Bank of America also reported no change in credit delinquency rates during the same period. This is interpreted as the household credit status still being stable.

However, the situation where some consumers are advancing purchases of products expected to see price increases due to tariffs raises concerns that the increase in consumption could be a temporary illusion. This 'pre-purchase' phenomenon is particularly noticeable in automobiles, and Bank of America released data supporting this.

Consumer sentiment is already showing unstable signs. The University of Michigan's Consumer Sentiment Index plummeted to 50.8 in April, marking the lowest level since June 2022. This represents a significant drop from the previous month's 57 and was well below the market expectation of 54.5. Consumer sentiment has continuously declined over the past four months, dropping over 30% since December of last year.

Future consumer expectations regarding inflation are also a source of uncertainty. The expected inflation rate within a year soared to 6.7%, reaching the highest level since 1981. This psychological change reflects concerns across the enterprise environment, personal finance, income, and the labor market as a whole.

The bigger issue is that the total household debt in the United States has reached an all-time high of $18.4 trillion. The Yale University Budget Institute analyzed that if all tariffs were implemented, prices would rise by approximately 2.3% in the short term, and average household purchasing power would decrease by about $3,800.

The resumption of student loan repayments is also exacerbating the consumer burden. In February, the appellate court halted the Biden administration's effort to reduce student loan alleviation, resulting in millions of borrowers being unable to receive monthly payment reductions or partial exemptions. This is expected to particularly impact low-income households more severely. Wells Fargo CEO Charlie Scharf also stated, "Signs of financial pressure are being detected among low-income customers."

The White House has not yet officially acknowledged the possibility of a recession, but a sense of crisis is growing within the financial sector. JP Morgan CEO Jamie Dimon revealed that their economists see the probability of a recession at 50%, and Goldman Sachs' David Solomon also warned that the risk of recession is increasing.

According to a CNBC survey, 63% of respondents expect that due to Trump's tariff policy, the United States economy will fall into a recession this year, with half predicting the recession will begin in earnest in the second quarter.