The US economy’s consumer-driven engine is showing signs of slowing down. Despite solid fundamentals, high inflation and interest rates have eroded confidence, causing consumers to pull back on spending. The Commerce Department reported a 0.1% increase in February’s inflation-adjusted consumer spending, while a separate survey showed a 12% decline in March’s consumer sentiment.
Consumer spending powers over two-thirds of the nation’s economic activity, making it crucial for maintaining overall health. If this engine falters, the consequences can be severe. Experts warn that lower-income and younger consumers are struggling more, living paycheck to paycheck, and facing higher delinquency rates due to tariff pressure.
However, there is some optimism about wages continuing to outpace inflation, and overall income growth remains strong. The labor market’s tightness has been a key driver of this growth. Yet, the uncertainty surrounding the Trump administration’s policies and tariffs threatens to chill spending and investment plans.
Experts caution that a recession is not the immediate concern, but an overall cooldown is likely. Wells Fargo economist Shannon Grein notes that while real spending came in weak, it’s premature to write off the consumer. The health of households’ mortgage loans, however, has been a notable offset, with mortgage delinquencies approaching pre-Covid levels.
Brough Brothers Distillery owner Victor Yarbrough illustrates the challenges faced by some consumers. As his company expands, he’s concerned about how customers will navigate rising prices if they don’t have jobs to support their spending. The uncertainty surrounding tariffs has disrupted plans for international distribution, highlighting the need for adaptability in the face of economic volatility.
In summary, while consumer fundamentals remain solid, the risks have intensified. Experts urge caution and highlight the importance of addressing the widening gap between lower-income and higher-income households.
Source: https://edition.cnn.com/2025/04/01/economy/us-consumer-tariffs-impact/index.html