Tariffs, Inflation, and Shifting Sentiment: Where is the U.S. Economy Headed?

As of mid-May 2025, the U.S. economy is showing mixed signals. While some hard data suggests a modest slowdown
rather than a recession, consumer and business sentiment has dropped significantly largely driven by renewed
concerns around inflation and trade tensions.

Consumer & Small Business Sentiment Drop Sharply

Consumer sentiment plunged to its second-lowest point since 1978, with many Americans citing inflation and rising
tariffs as major concerns. Similarly, the NFIB Small Business Optimism Index declined for the fourth straight month.

Tariff Truce with China

A 90-day tariff reduction between the U.S. and China lowered rates from 145% to 30%. Markets responded well, but
confidence remains low.

Inflation Trends

  • April CPI: Headline +0.22%, Core +0.24%
  • Annual Core CPI at 2.8%
  • Grocery prices fell, but vehicle insurance costs rose

Retail & Industrial Data

Retail Sales: +0.1% in April. Gains in electronics & furniture may reflect pre-tariff buying.
Industrial Production: Flat overall, but manufacturing output fell 0.4%.

Housing Market

Existing home sales fell 5.9%. New home sales up in March, expected to dip in April.

Student Loans

Delinquencies surged to 8.2% after payment pause ended.

Commercial Real Estate

CRE market showed signs of recovery with declining vacancy rates, rising transactions, and improved capital
availability.

Conclusion

The U.S. economy in May 2025 presents a complex narrative. While retail sales and commercial real estate hint at
resilience, crashing consumer sentiment and rising student loan delinquencies reflect deeper concerns. Inflation shows
signs of cooling, but lingering tariff impacts and cautious consumer behavior keep the outlook uncertain. This dual
nature resilience in hard data versus vulnerability in sentiment defines the current economic climate.


Staying informed on indicators like home sales, CPI trends, and lending activity will be crucial in the months ahead.
Policymakers and businesses alike must navigate this delicate balance as they plan for what comes next.

This blog is a summary and commentary based on publicly available insights from Wells Fargo’s economic report dated May 16, 2025. All rights belong to the original publisher.