Spending at US retailers last month was much weaker than expected, signaling that American shoppers may be starting to tap out, with retailers pointing to President Donald Trump’s tariffs as a key factor.
Retail sales only increased by 0.2% from January, according to the Commerce Department. This was far below the 0.7% growth that economists had predicted.
The ongoing trade dispute under President Donald Trump with America’s top trading partners has created uncertainty for both consumers and businesses. This nervousness has shown up in surveys, and now shoppers seem to be changing their buying habits. Retail sales make up about a third of all spending in the US.
Weak retail sales are raising concerns that the US economy may be slowing down, possibly heading toward a recession. The retail report from Monday only added to these worries.
Spending dropped the most at department stores (-1.7%), restaurants and bars (-1.5%), and gas stations (-1%). However, online sales and health stores saw increases, with online sales rising 2.4% and health stores up by 1.7%.
There was a bit of positive news in the report too. When excluding gas stations, car dealerships, building materials, and restaurants (called the “control group”), retail sales rose 1% in February, bouncing back from a 1% drop in January. This was better than the 0.4% increase that economists expected.
Jonathan Moyes, head of investment research at Wealth Club, told CNN, “With sentiment so poor, investors have been hoping the mighty US consumer provides reassurance that all is well on Main Street. They didn’t find it, with retail sales coming in lower than expected the US consumer is starting to look a little peaky.”
Retailers in the US have recently warned that consumers are feeling stretched and more cautious about their spending. Some stores are even considering raising prices if Trump’s trade war continues.
Todd Vasos, CEO of Dollar General, said, “Our customers continue to report that their financial situation has worsened over the last year as they have been negatively impacted by ongoing inflation. Many of our customers report they only have enough money for basic essentials, with some noting that they have had to sacrifice even on the necessities.”
Meanwhile, Walmart, the largest retailer in the US, is expecting slower sales and profits this year. John David Rainey, Walmart’s finance chief, mentioned concerns about “uncertainties related to consumer behavior and global economic and geopolitical conditions.”
Retail executives are also worried about how Trump’s tariffs are affecting their businesses. Corie Barry, CEO of Best Buy, said, “We’ve never seen this kind of breadth of tariffs. This, of course, impacts the whole industry.” Best Buy expects vendors to pass along some of these costs, making it likely that prices for American consumers will rise.
On March 4, Trump imposed a 25% tariff on goods from Mexico and Canada but later delayed it after hearing complaints from businesses. That same day, Target CEO Brian Cornell warned that the tariffs could quickly lead to higher prices on fruits and vegetables from Mexico, and that the uncertainty could hurt Target’s profits.
The Fed and the Economy’s Mixed Signals
The mood in the US economy is growing darker. Shoppers are spending less, and the housing market is still sluggish. On top of that, Trump’s tariffs threaten to cause higher inflation.
The Federal Reserve, which sets interest rates, is trying to make sense of this confusing economic situation. In January, the Fed decided to keep interest rates steady after making three cuts last year. Now, it seems likely they’ll keep them the same for a while.
Economists are also sounding the alarm about global markets. They warn that Trump’s tariffs are hurting not only the US but also other countries. The tariffs are raising prices, which could slow down global economic growth and make the situation worse if trade tensions continue. The Organisation for Economic Co-operation and Development (OECD) said in a report that Trump’s policies are hurting the world’s economies by creating uncertainty and raising costs.
Economists are concerned that the US economy is heading toward “stagflation,” where growth slows down while inflation keeps rising.
The OECD report explained that “the new bilateral tariff rates will raise revenues for the governments imposing them but will be a drag on global activity, incomes, and regular tax revenues.”
While some officials still say the outlook for growth is good, they acknowledge the uncertainty caused by Trump’s policies. Federal Reserve Chairman Jerome Powell mentioned earlier this month that the central bank is waiting to see how Trump’s policies, from tariffs to mass deportations, show up in the data before deciding whether to keep rates the same, cut them, or raise them again.
