Signals of a recession? From daily necessities to luxury goods, U.S. consumption is in decline across the board

Faced with ongoing tariff pressures, stubborn inflation, and new concerns about an economic recession, American consumers are tightening their wallets across the board.

From low-income groups to high-income individuals, and from necessities to luxury goods, signs of cooling consumption are everywhere. This raises alarms about the prospects for the recovery of the U.S. economy.

Retailers such as Target, Foot Locker, and Lowe’s have all reported weak demand in February. Target CEO Brian Cornell stated that consumers are considering the potential impact of tariffs and what it means for them. Wealthy customers shopping at Macy’s are also feeling uncertain, confused, and worried about what is happening.

Consumers have recently faced a series of negative news. Trump's refusal to rule out the possibility of a recession due to his economic policies led to a stock market crash. Subsequently, a new round of tariff threats, counter-tariffs, and reversals emerged. Although recent inflation data shows a slight slowdown in price increases in February, this is not comforting, as the data does not fully reflect the impact of Trump's tariffs.

Weak Consumption Among Low-Income Groups, High-End Market Also Affected

Weak consumption among low-income consumers is one of the early signs of cooling consumption in the U.S. Doug McMillon, CEO of Walmart, stated in an interview at the Chicago Economic Club at the end of February that the behavior of "budget-constrained" customers is being affected: They are starting to buy smaller packaged goods at the end of the month because their "money runs out by the end of the month."

McDonald's also mentioned in its recent earnings call that demand from low-income consumers has been weak, leading to a "slow" start to the year. According to McDonald's data, sales in the U.S. fast-food industry targeting low-income consumers fell by double-digit percentages in the fourth quarter compared to the same period last year.

The trend of cooling consumption is also spreading to the high-end market. According to an analysis of credit card transaction data by Citibank, U.S. consumer spending in the luxury goods market fell by 9.3% year-on-year in February, a larger decline than the 5.9% drop in January.

The general frugality mindset among consumers is affecting multiple areas of consumption. Costco CFO Gary Millerchip stated that its members' demand has shifted to lower-priced proteins, such as ground beef and poultry. Although members are still spending, they are "very cautious" when they do. He believes that if tariffs lead to more inflation, consumers may become even more selective.

Department stores are also showing similar signs of tightening spending. Kohl’s CEO Ashley Buchanan stated that consumers with annual incomes below $50,000 are "quite constrained" in discretionary spending, while those with incomes below $100,000 are also facing "considerable challenges." The company provided a full-year sales forecast that was far below Wall Street expectations, causing its stock price to plummet 24% on Tuesday.

Macy’s CEO Tony Spring stated that “wealthy customers shopping at Macy’s are also feeling uncertain, confused, and worried about what is happening.”

Deteriorating Macroeconomic Environment: Multiple Adverse Factors at Play

Economists believe that various macroeconomic factors are working together to lead to a cooling of consumer spending in the United States. Data from the Federal Reserve Bank of Atlanta shows that the increase in food stamp benefits during the pandemic has been reversed since 2023, and by the end of 2024, wage growth for the lowest-income groups in the U.S. is expected to lag behind that of higher-income groups.

Additionally, years of inflation, particularly in essentials like groceries, rent, and utilities, have hit low-income Americans especially hard. Despite the stock market rally driven by the AI boom, spending by high-income individuals has not been able to offset the overall decline in consumption.

Consumers have recently faced a series of negative news. Trump's refusal to rule out the possibility of a recession due to his economic policies led to a stock market plunge. Subsequently, a new round of tariff threats, anti-tariffs, and reversals emerged. Although recent inflation data showed a slight slowdown in price increases in February, this is not reassuring, as the data does not fully reflect the impact of Trump's tariffs.

According to credit card data tracked by the Bank of America Institute, checking and savings account balances across all income levels have been declining over the 12 months ending in February and are approaching inflation-adjusted levels from 2019. Data from the Federal Reserve Bank of Atlanta indicates that wage growth has slowed across all income groups over the past year. Inflation-adjusted debt balances for Americans have begun to exceed pre-pandemic levels.

American consumers are becoming increasingly cautious, which means they are generally less able to absorb shocks, and the economy is facing growing uncertainty. If this trend in consumption continues, it will undoubtedly pose a severe challenge to the prospects for economic recovery in the United States