April 11, 2025
Consumer Spending Faces Slowdown Despite Strong Jobs Data
Despite robust job gains and steady wage growth in March, U.S. consumer sentiment has taken a downturn, setting the stage for potential weakness in Q2 retail and service sector activity. The University of Michigan’s Consumer Confidence Index fell sharply in April, as rising prices and geopolitical tensions began to weigh on households.
Economists attribute the dip in sentiment to several key factors. The University of Michigan’s index dropped from 57.0 in March to 52.2 in April—the lowest level since early 2025—marking the fourth consecutive monthly decline. This slide reflects widespread unease, with one‑year inflation expectations rising to around 6.5%, the highest level since the early 1980s. Five‑year expectations also climbed above 4%, indicating that consumers fear higher prices will persist.
Notably, the survey highlighted that tariff anxieties are a primary source of consumer concern. In April, nearly 75% of respondents cited trade‑policy uncertainty—up from around 60% in March—when asked what was contributing to their outlooks on prices and the economy . This surge in trade‑related worries accompanies perceptions of eroding living standards: approximately 40% of consumers reported that higher prices were diminishing their financial well‑being, even amid nominal wage increases.
Meanwhile, the March jobs report painted a different picture. Employers added 228,000 non-farm jobs, significantly exceeding forecasts, and the unemployment rate ticked up modestly to 4.2%. Average hourly earnings rose approximately 3.8–4% year-over-year, reinforcing that household incomes are climbing. Despite solid labor-market fundamentals, however, consumer expectations for future employment performance have weakened—a common theme in environments of policy ambiguity.
Experts warn that this growing disconnect between solid jobs data and declining sentiment could herald a slowdown in consumer spending growth. Price‑sensitive categories such as retail, hospitality, and leisure may be especially vulnerable in Q2 and potentially beyond. Economists at Capital Economics and other firms have noted that ongoing tariff uncertainty may extend downward pressure into late 2025 .
Some forecasters suggest that spending may have already been “front‑loaded” in anticipation of higher prices, with consumers accelerating purchases—like vehicles and school supplies—to beat tariffs. Yet with sentiment still languishing and inflation concerns persisting, subsequent spending could falter despite nominal income gains.
Adding to the complexity, geopolitical tensions—including trade friction with China and policy instability—are heightening the sense of uncertainty. These pressures are spilling over into financial markets, influencing treasury yields, and keeping a tight lid on U.S. dollar strength as investors reassess risks.
Looking ahead, analysts highlight several key variables to watch. First, whether wage growth continues to outpace inflation—which, at around 2.7% in June, remains elevated—will determine real-income trends and consumer purchasing power. Secondly, any moderation in tariff policy or visible movement in trade negotiations could ease sentiment and support discretionary spending.
Additionally, retailers and service providers are preparing for cautious consumer behavior. Some are adjusting inventories, moderating hiring and hours, or implementing promotional strategies to stimulate demand. Others are warning of potential misses in earnings if spending softness continues.
In summary, while the labor market remains healthy and households still enjoy rising incomes, game-changing concerns about inflation and geopolitical instability are tarnishing consumer confidence. With sentiment sliding to near‑record lows, economists caution that retail and service sector growth may decelerate in Q2, jeopardizing broader GDP momentum unless policymakers act to reduce economic uncertainties.
