In February, U.S. consumers showed a slight increase in spending, but the boost was marginal compared to the significant reduction that occurred in January, amid growing concerns about the economic outlook. According to the Commerce Department’s report, retail sales nudged up by just 0.2% following a drop of 1.2% in the previous month. The modest rise was evident in grocery stores, home improvement retailers, and online platforms, while declines were noted in car dealerships, dining establishments, and electronics outlets.
The tepid climb suggests consumers are proceeding with caution as stock market instability, tariff uncertainty from the Trump administration, and potential budget cuts loom over the economy, affecting both corporate and consumer confidence. Economists had mixed reactions, with some expressing relief that the sales data wasn’t worse, but projections still indicate consumer spending may increase only by 1% to 1.5% on an annual basis for the first quarter. This is significantly lower than the 4.2% increase recorded in the last quarter of the previous year.
Stephen Brown, an economist at Capital Economics, commented that although consumer spending appears poised to decelerate, the rate of decline might not be as steep as initially feared. Further compounding concerns, the University of Michigan reported a significant drop in consumer sentiment for the third consecutive month, now over 20% lower than it was in December. The dip in confidence is largely attributed to prevalent policy uncertainties, with partisan divides evident — Republican confidence in the future economy slipped by 10%, while Democrats reported even larger declines.
Amidst these concerns, financially stressed consumers have been echoed in earnings announcements from leading retailers such as Walmart, Macy’s, and Dollar General. Walmart, a significant player in the retail sector, reported a subdued outlook due to tariff unpredictability. February also witnessed decreased sales at gas stations, clothing retailers, and sporting goods outlets. Although retail sales saw a 0.5% increase when excluding gasoline and automotive purchases, this figure remains modest following January’s 0.8% plunge.
In tandem, the National Association of Home Builders reported a downturn in builder sentiment, noting a three-point fall to 39 — a seven-month low. Economic unpredictability and tariffs are pointed out as factors impacting builder confidence as well as the frequency of potential homebuyers. The association highlighted tariffs adding around $9,200 to the price of a new home.
Retailers like Macy’s are experiencing customer anxiety, evident in their financial outlook. Macy’s CEO Tony Spring noted that even affluent customers at high-end chains are being influenced by the prevalent uncertainty. Meanwhile, Dollar General’s CEO, Todd Vasos, reported that economic conditions for customers have deteriorated, with the company planning to shutter around 100 stores due to ongoing inflation. Vasos shared insights from customers who are finding it challenging to cover even essential expenses.
Similarly, spending at Costco has shifted, with consumers opting for cheaper food options, reflecting a more conservative approach as the economic horizon darkens. American Eagle Outfitters CEO Jay Schottenstein underscored the apprehension among younger customers regarding government policy changes.
The data primarily cover tangible goods purchases but suggest potential cuts in service spending. This sentiment is reflected in observations from airline executives who noticed a dip in bookings—an indication of consumers pulling back on discretionary travel spending. Delta’s CEO Ed Bastian remarked on signs of weakening consumer confidence, resonating with broader caution in economic sentiment.
