Growing discontentment towards the economy is prevalent among Americans. Could this signify an approaching economic downturn, or a recession?
"Nowadays, people are feeling rather jittery due to the changes happening under Trump's leadership," Mark Zandi, the chief economist at Moody's, shared with CNN. "If this fear persists and consumers decide to pull back their spending for three more months, it could spell trouble."
The United States is experiencing a wave of anxiety, thanks to concerns about inflation stemming from Trump's tariffs. Consumer confidence took a nosedive in February, registering its sharpest drop since August 2021, according to The Conference Board. The National Federation of Independent Business also reported an impressive height for its Uncertainty Index in January since its inception in 1973.
Pessimism is spreading on Wall Street too, with investor sentiment shifting into 'extreme fear,' last witnessed in December, as per CNN's Fear & Greed Index.
While gloomy sentiments don't usually translate into a consumer spending slowdown, economists suggest there might be an exception this time. The uncertainty spawned by Trump's administration could potentially affect the economy if the negative sentiments persist.
The U.S. economy depends on consumer spending, accounting for around 70% of its total output. If spending remains healthy, a recession could be averted. Despite the lack of signs pointing towards a consumer spending slowdown, retail sales in January took a dive, falling by 0.9% compared to the previous month – the first such decline since August 2024. The chill in the weather may have caused shoppers to hunker down rather than spend, economists argue.
Walmart, the dominant retailer in the U.S., recently expressed concerns about potential slow growth in sales and profits this year. The high inflation and steep interest rates have squeezed some consumers, particularly those with lower incomes.
Thankfully, America's job market remains robust, with a 4% unemployment rate and a consistent growth in average hourly earnings. This indicates that spending should continue, but layoffs in the federal workforce could leave consumers bettering their belts.
Recently, the federal workforce has shrunk through layoffs under the guidance of Elon Musk's Department of Government Efficiency. The layoffs are expected to slightly increase the unemployment rate, but the labor market's resilience is expected to withstand these changes, according to economists.
Businesses are feeling the impact of the economic uncertainty, with some predicting a decrease in profits due to the persistent pessimism. The average consumer spends around 70% of the country's total output, and the economic downturn could be exacerbated if this average spending continues to decrease due to the tariffs-induced inflation. Furthermore, the average hourly earnings have been consistent, but with the layoffs in the federal workforce, consumers might need to tighten their belts, which could potentially impact the economy.
