After a sharp pullback in January, United States retail sales showed only a modest recovery in February, signaling a shift toward more cautious consumer spending amid growing economic uncertainty.
The moderate recovery in February, while providing some relief, highlights the ongoing challenges that consumers and retailers alike must navigate in a time of heightened financial uncertainty.
A Modest Uptick In Sales
According to the Commerce Department, retail sales rose just 0.2% in February, following a sharp 1.2% drop in January. The mixed performance reflected gains in some sectors but declines in others; take a look below.
Sectors with gains:
- Grocery stores
- Home and garden stores
- Online retailers
Sectors with declines:
- Auto dealerships
- Restaurants
- Electronics stores
The slight increase suggests that concerns over stock market volatility, trade policy, and government spending cuts are weighing on consumer confidence. This shift in consumer sentiment could have broader implications for the economy as a whole, with businesses potentially facing more challenges in maintaining strong sales growth in the months ahead.
A widely watched measure of consumer sentiment fell sharply for the third straight month, now down more than 20% since December. The University of Michigan's survey revealed that policy uncertainty was a leading factor behind this drop. Notably, confidence in the economy's future among Republicans fell 10%, highlighting bipartisan concerns.
A Slowdown In Consumer Spending
Some economists are adjusting their forecasts, expecting consumer spending to grow at just 1% to 1.5% in Q1 — a stark contrast to the 4.2% increase in the final quarter of last year.
Stephen Brown, an economist at Capital Economics, said consumer spending is on track to slow sharply this quarter but not as much as previously feared.
Retailers Feel The Pressure
Major retailers have also sounded the alarm on shifting spending patterns:
- Walmart, the nation's largest retailer, issued a weak outlook, citing tariff-related uncertainty.
- Macy's, including its upscale chains Bluemercury and Bloomingdale's, reported rising consumer anxiety.
- Dollar General announced plans to close around 100 stores, citing worsening financial situations for its core customers.
Dollar General CEO Todd Vasos said many customers report only having enough money for basic essentials, with some noting that they have had to sacrifice even on necessities.
Changing Consumer Behavior
As economic uncertainty deepens, Americans are adjusting their spending habits:
- Costco reports a shift toward more affordable grocery items, such as ground beef and poultry, over pricier cuts of meat.
- American Eagle Outfitters CEO Jay Schottenstein noted heightened anxiety among younger shoppers, attributing it to a mix of inflation, tariffs, and government policy shifts.
As the cost of living continues to rise and uncertainty surrounding the future of the economy persists, many consumers appear to be re-evaluating their purchasing behaviors, opting for more essential purchases and scaling back on discretionary spending.
Trouble Beyond Retail: Service Sector Impact
The caution isn't just limited to retail. Airline executives at JP Morgan's airline industry conference noted a decline in bookings. Delta CEO Ed Bastian said there was a noticeable shift in economic sentiment and consumer confidence.
While job markets remain stable, with no significant layoffs reported, retailers and analysts warn that continued consumer hesitation could dampen economic growth in the coming months.
