Jamie Spencer
U.S. shoppers increased their spending only marginally in February, following a sharp decline in January. This signals a more cautious approach to spending as concerns about the economy mount.
The Commerce Department reported Monday that retail sales rose 0.2% last month, rebounding slightly after a 1.2% drop in January. Sales increased at grocery stores, home and garden stores, and online retailers, while declines were seen at auto dealers, restaurants, and electronics stores.
Consumer Caution Amid Uncertainty
The modest increase in spending comes as stock markets plunge and President Donald Trump’s tariffs and government spending cuts fuel uncertainty among consumers and businesses.
Some economists were relieved the numbers weren’t worse. However, many expect consumer spending to grow just 1% to 1.5% annually in the first quarter of the year, significantly lower than the 4.2% increase seen in the final quarter of last year.
“Consumer spending is on track to slow sharply this quarter, but not by as much as we previously feared,” said Stephen Brown, an economist at Capital Economics.
Consumer Sentiment Drops Sharply
On Friday, the University of Michigan reported that consumer sentiment fell for the third straight month, now down more than 20% since December. Policy uncertainty was cited as a major reason for the gloomier outlook.
“Consumers from all three political affiliations are growing uneasy,” the report noted. “Even Republican confidence in the economy’s future dropped 10%.”
Retailers Feel the Pressure
Major U.S. retailers, including Walmart, Macy’s, and Dollar General, have all pointed to a shift in consumer behavior:
- Walmart: The retail giant issued a weak outlook due to tariff uncertainty.
- Macy’s: Customers at both its flagship and luxury chains are spending less.
- Dollar General: CEO Todd Vasos noted customers are struggling to afford even basic essentials.
Spending Shifts and Economic Angst
February sales also fell at gas stations, clothing stores, and sporting goods stores. Lower gas prices likely contributed to the decline, but even when excluding gas and auto sales, retail sales rose only 0.5%, still a modest increase after January’s 0.8% plunge.
The National Association of Homebuilders reported that builder sentiment fell to its lowest level in seven months, citing economic uncertainty, rising construction costs, and the impact of tariffs, which they estimate will add $9,200 to the cost of a new home.
Retail Spending and Inflation Trends
Costco reported that shoppers are shifting spending toward ground beef and poultry rather than more expensive meat cuts, indicating consumer belt-tightening.
“There’s a change in shopping patterns as consumers prioritize essentials over discretionary items,” said Gary Millership, Costco’s chief financial officer.
Consumers Cutting Back on Services Too
It’s not just goods—Americans appear to be reducing spending on services as well.
At last week’s JP Morgan airline industry conference, airline executives reported a decline in bookings, with Delta CEO Ed Bastian saying: “There’s something going on with economic sentiment and consumer confidence.”
Future Uncertainty Looms
Although the labor market remains strong, there are no guarantees spending will hold steady. American Eagle Outfitters CEO Jay Schottenstein noted growing anxiety among younger shoppers.
“It’s not just tariffs or inflation,” said Schottenstein. “Consumers see the government cutting benefits and they don’t know what’s coming next, so they start to hold back on spending.”
With ongoing economic uncertainty, tariffs, and weaker consumer confidence, analysts remain cautious about the trajectory of U.S. retail spending in the coming months.
