Have U.S. Consumers Shaken Off Tariff Concerns?

The American consumer isn’t simply pulling back. They are changing the way they spend – and save. Our U.S. Thematic and Equity Strategist Michelle Weaver digs into the data.

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Michelle Weaver: Welcome to Thoughts on the Market. I'm Michelle Weaver, Morgan Stanley's U.S. Thematic and Equity Strategist.

Today, the U.S. consumer. What's changing about the ways Americans spend, save and feel about the future?

It's Monday, July 7th at 10am in London.

As markets digest mixed signals – whether that's easing inflation, changing politics, and persistent noise around tariffs – U.S. consumers are recalibrating. Under the surface of headline numbers, a more complex story is unfolding about the ways Americans are not just reacting but adapting to macro challenges.

First, I want to start with a big picture. Data from our latest consumer survey shows that consumer sentiment has stabilized, even as uncertainty around tariffs persists, especially into these rolling July deadlines. Inflation remains the top concern for most. But the good news is that it's trending lower. This month more than half of respondents cited inflation as their primary concern, a slight decrease from last month and a year ago. Now, that's a subtle but a meaningful decline suggesting consumers may be adjusting their expectations rather than bracing for continued price shocks. At the same time though political concerns are on the rise. More than 40 percent of consumers now list the U.S. political environment as a major worry. That's slightly up from last month; and not surprisingly concern around geopolitical conflicts has also jumped from a month ago.

Now, when we break this down by income levels, we see some interesting trends. Inflation is the top concern across all income groups, except for those earning more than $150,000. For them, politics takes the top spot. Lower income households, though, are more focused on paying rent and debts, while higher income groups are more concerned about their investments.

As for tariffs, concern remains high but stable. About 40 percent of consumers are very worried about tariffs and another 25 percent are moderately so. But if we look under the surface, it's really showing us a political divide. 63 percent of liberals are very concerned, compared to just 23 percent of conservatives who say they're very concerned.

Despite these worries, though, fewer people overall are planning to cut back on spending. Only about a third say they'll spend less due to tariffs, which is down quite a bit from earlier this year. Meanwhile, about a quarter plan to spend more, and roughly a third don't expect to change their plans at all.

This resilience points to the notable behavioral trend I mentioned at the start. Consumers are not just reacting, they're adapting. Looking at the broader economy, consumer confidence is holding steady according to our survey, although it's slightly down from last month. But when it comes to household finances, the outlook is more positive with a significant number expecting their finances to improve and fewer expecting them to worsen – a net positive.

Savings are also showing some resilience. The average consumer has several months of savings, slightly up from last year. Spending intentions are stable with nearly a third of consumers planning to spend more next month while fewer planned to spend less. And when it comes to big ticket items, more than half of U.S. consumers are planning a major purchase in the next three months, including vehicles, appliances, and vacations.

Speaking of vacations, summer travel season is here and I'm looking forward to taking a trip soon. Around 60 percent of co