Trump's Trade War and Federal Reserve Rate Cut Are Worrying Consumers

President Donald Trump's trade war with China is worrying consumers and infusing more uncertainty into the U.S. economy, according to preliminary sentiment figures released by the University of Michigan on Friday.

Consumer sentiment for August dropped to the lowest level since January, decreasing 6.4 percent from last month and falling far below expectations. The 92.1 figure for this month was 4.3 percent decline from the previous year.

Since consumer spending accounts for more than two-thirds of U.S. economic activity, a slowdown in consumer confidence can have serious ramifications for the country's economic health.

"Consumers strongly reacted to the proposed September increase in tariffs on Chinese imports, spontaneously cited by 33 percent of all consumers in early August, barely below the recent peak of 37 percent," Richard Curtin, a research associate professor at the University of Michigan's Survey Research Center wrote in an explanation of the figures. Curtin comments reference Trump's threat to impose new percent tariffs on $300 billion more Chinese imports at the start of next month.

Trump has since temporarily exempted several items popularly bought at Christmas from the tariffs scheduled to be levied. But $111 billion of imports, primarily consumer items, will still be affected if the tariffs go into place on September 1, according to a Wall Street Journal analysis.

The falling consumer sentiment figure also followed the Federal Reserve reducing its key federal funds rate for the first time in over a decade in an attempt to stimulate the economic growth. Federal Reserve Chairman Jerome Powell pointed to trade uncertainty as one of the primary reasons for the rate cut.

"The main takeaway for consumers from the first cut in interest rates in a decade was to increase apprehensions about a possible recession. Consumers concluded, following the Fed's lead, that they may need to reduce spending in anticipation of a potential recession," Curtin wrote.

The decrease in consumer data is another sign that is concerning analysts warning of a recession. The stock market suffered its worst day this week, and the inverted bond yield curve has generated fears that a recession is coming.

The president has regularly touted his economic prowess, but analysts are pointing to his protectionist trade measures and attempts to renegotiate long-standing trade relations as a cause for the global economic uncertainty influencing slow growth.

At his Manchester, New Hampshire, rally on Thursday night, the president defended his economic record. But Trump's depiction of his impact on the economy defies what analysts from major banks have said when noting that his trade policies could spark a global recession.

President Donald Trump speaks to supporters at a rally in Manchester, Hew Hampshire, on August 15. Spencer Platt/Getty Images