Consumer Says: Has Gloomy Sentiment Affected Spending?

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What’s new in the economy?

• While spending was muted in January, February is shaping to be somewhat better. Retail sales came in under expectations but still grew rather than contracted. Personal Consumption Expenditures (PCE) data for February will be released later this week but is largely expected to be positive month-over-month. Morning Consult’s consumer spending data also rose in February, driven primarily by high-income consumers. 
• Good news for prices — after months of heating, the Bureau of Labor Statistics’ annual inflation measures, including the Consumer Price Index (CPI) and Produce Price Index (PPI) slowed in February. 
• At its last meeting, the Federal Reserve held interest rates steady, signaling no rush for further rate cuts. However, in its Summary of Economic Projections, the Fed lowered its growth forecast while increasing its inflation projections for 2025. 
• The Index of Consumer Sentiment soured further in March, fueled by concerns about the future of the economy amid heightened economic uncertainty.

Consumer says:

Now onto consumer data from Morning Consult. If you prefer listening, stream our podcast episode here.

Spending was muted in January but rebounded in February

Morning Consult’s average spending measure grew slightly in January 2025 but had the weakest start to a year since tracking began. Amid recent gloominess in consumer sentiment, heightened economic uncertainty, and sharp stock market declines beginning in late February, dampened spending was another bad sign for the U.S. economy. Once again, though, consumers showed their persistent strength, rebounding spending again in February. Increases were broad-based across all income groups, but high-income households appear to be driving the most strength so far in 2025.

Despite more negative “vibes,” consumers are doing reasonably well overall

February’s rebound in spending reminds us that although uncertainty about the future economic outlook is high, causing consumer sentiment to dip, real-time measures of consumer health paint a rosier picture. Morning Consult’s U.S. Consumer Health Index (CHI) combines high-frequency consumer sentiment and employment data to create a real-time metric tracking consumer spending demand.

Across all income cohorts, CHI scores declined through the first few quarters of 2024 as consumers became increasingly fatigued and unwilling to accept elevated price levels while employment levels began softening somewhat. However, CHI began rebounding through the end of 2024 and continued into the new year as consumers’ views of their personal finances continued to improve, and employment levels firmed up slightly.

Income dynamics and tariffs threaten the future spending outlook

High-income consumers continue to drive the persistent spending strength, partly supported by better consumer finances than their lower-earning peers. However, increasing reliance on high-income consumers to keep the economy going could make it challenging to maintain current spending levels if this group decides to pull back, particularly for nonessentials which can easily be cut out of budgets.

More reliance on high-income consumers is not the only downside risk to the outlook. While the broad-based tariffs on Canada and Mexico have been delayed until April 2nd, many tariffs have been put in place since early February. 

Newly implemented tariffs have yet to affect consumer prices, but some import prices have begun to increase. Consumers are not in the same financial position as they were a few years ago, and the economic climate is different than the one coming out of the pandemic, making potential price increases and reduced business activity due to tariffs likely more painful than the ones implemented during President Trump’s first term. 

Further reading:

• Want to dig deeper into the recent spending numbers? Read the full memo here: Spending Holds On Despite Heightened Economic Uncertainty.
• You may have noticed an egg shortage or high prices in your recent trips to the grocery store. How are consumers reacting? Do they blame grocers or politicians? What conclusions can we draw for other spending going forward? We crunched the numbers here.
• More tariffs are expected to come on April 2, but quite a few have already been implemented since the start of the year. Read our analysis on what tariffs are in place, how/if they have impacted prices yet, and what their implications are for spending and the overall economy.

… Stay tuned, and we’ll be back with more economic insights & research updates in two weeks.