Consumer confidence in the United States experienced a significant decline in February, marking the sharpest monthly drop since August 2021. This unsettling trend is accompanied by a 0.9% fall in retail sales in January, the first monthly decline since August 2024. With consumer spending accounting for about 70% of the US economy, these indicators raise concerns about the overall economic stability. The Commerce Department is set to release more detailed figures on consumer spending this Friday, which could provide further insights into economic conditions.
The federal civilian workforce, representing less than 2% of the total 170.7 million jobs in the United States, is undergoing reductions under the Trump administration. Concurrently, inflation fears fueled by tariffs introduced during Trump's tenure are causing anxiety among consumers and businesses. In June 2022, consumer sentiment plummeted to a record low when inflation reached a four-decade high. Recent surveys reflect growing unease as many fear inflation may rise again.
“The kinds of changes that are occurring under Trump are arguably unprecedented, and it’s making people very nervous,” said Mark Zandi, chief economist at Moody’s.
Investor sentiment has also shifted towards "extreme fear," a level not seen since December, as reported by CNN's Fear & Greed Index. The National Federation of Independent Business noted its third-highest reading ever on its Uncertainty Index for January. Despite these uncertainties, the US job market remains robust, with unemployment at 4% and average hourly earnings showing growth.
Walmart, America's largest retailer, recently cautioned that its sales and profit growth might slow this year. However, experts believe that the resilient US labor market will withstand potential layoffs without destabilizing the economy.
“When layoffs hit close to home, people start getting nervous,” stated Robert Frick, corporate economist at Navy Federal Credit Union.
Retail sales, which account for about a third of overall consumer spending, are a critical component of economic health. The recent decline in retail sales adds to concerns about consumer behavior and economic prospects. Experts warn that continued drops in consumer confidence and spending could have broader implications.
“If confidence continues to fall for another three months, and consumers actually pack it in, then game over,” cautioned Mark Zandi.
However, Zandi also emphasized that it is premature to conclude that recession dynamics are taking hold.
“It’s way too premature to conclude that recession dynamics are starting to take hold, but this could be a unique time when uncertainty does upend sentiment, and actually causes consumers to pull back,” he added.