US consumers are cutting back on spending amid uncertainty over tariffs and government job cuts, which may weigh on the economy. The Commerce Department reported a 0.2% drop in consumer spending in January from the previous month, with incomes rising but prices expected to increase due to President Donald Trump’s proposed large import taxes on Canada, Mexico, and China.
Economists warn that tariffs could push inflation higher, while some companies are already planning price increases. A surge in imports in January suggests businesses may be front-running tariffs, which would likely lead to a slowdown in economic growth. The Federal Reserve projects a 1.5% annual contraction in the January-March quarter.
Despite this, most analysts still expect the economy to expand in the first quarter, albeit at a slower pace. Inflation cooled slightly in January, but economists caution that tariffs could upend progress. President Trump’s plans for widespread layoffs and increased tariffs on imports from China are also raising concerns among businesses.
As one company, World Emblem, prepares to raise prices by 5-10% due to potential tariffs, others may face similar challenges. The nation’s largest retailer, Walmart, cited uncertainty over consumer health as it reported weaker-than-expected sales growth estimates for the year. Consumer confidence has been unwinding in recent weeks amid worries about tariffs and spending cuts.
The Federal Reserve is maintaining its short-term interest rate at 4.3%, citing a desire to slow borrowing and spending enough to lower inflation back to their 2% target. However, with inflation still a threat, many expect the Fed to keep rates unchanged.
Source: https://apnews.com/article/economy-consumer-trump-tariffs-inflation-b8eacbe9b948af91a4efc97dd3f85cfa