In February, consumer spending continued to rise, but personal income increased even more, causing the savings rate to climb and suggesting a more cautious approach from Americans. With economic growth slowing down, some businesses are cutting their earnings projections due to concerns about consumer behavior.
As confidence in the economy weakens, consumers are cutting back on spending, prompting businesses to revise their earnings forecasts. Personal income surged by 0.8% last month, while spending grew by 0.4%, pushing the savings rate up to 4.6% – the highest since June 2024, indicating a shift towards more prudent spending habits.
“The spending data from February indicate a slowdown in consumer activity in the first quarter of 2025,” noted Bill Adams, Chief Economist at Comerica Bank. Although weak January spending could be attributed to specific factors like the wildfires in LA and severe weather conditions, the lackluster rebound in February suggests a more persistent decline.
Meanwhile, consumer confidence is on the decline, but this sentiment is not translating into increased spending. The Conference Board’s expectations index in the latest consumer confidence survey plummeted to a 12-year low of 65.2, well below the recession threshold of 80.
Furthermore, the University of Michigan’s consumer sentiment survey recorded an 11% drop this week, with director Joanne Hsu noting a unanimous decline in expectations across all demographic and political groups since February.
As consumers navigate uncertain economic conditions, businesses are feeling the impact across various sectors. Some are revising their earnings forecasts due to factors such as tariffs, inflation, and shifting consumer behavior. FedEx, for instance, revised its full-year profit forecast downwards, citing challenges in the global industrial economy, inflationary pressures, and trade policy uncertainties.
Delta Air Lines also adjusted its earnings projections for the first quarter, anticipating lower profits compared to earlier estimates, attributing the change to decreased consumer and corporate confidence amid economic uncertainty.
American Airlines similarly lowered its growth forecasts for the quarter due to weakened demand and lingering effects from a recent accident, with revenue expected to remain flat compared to the previous year.
In addition, companies like Lululemon are experiencing subdued consumer sentiment, leading to reduced foot traffic. The impact of ‘tariff headwinds’ is evident as businesses navigate the challenges posed by the evolving economic landscape.
The company projects first-quarter revenue to be between $2.34 billion and $2.36 billion, falling short of the expected $2.39 billion. A recent survey conducted by the company in collaboration with Ipsos revealed that consumers are spending less due to growing concerns about inflation and the economy. CFO Meghan Frank expressed concerns during the earnings call about potential challenges from tariffs impacting sales in 2025. The company anticipates revenue to reach between $11.1 billion and $11.3 billion this year, a slight increase from $10.59 billion in 2024 but below analysts’ expectations of $11.31 billion. Retail giant Walmart provided a full-year adjusted earnings outlook of $2.50 to $2.60 per share, falling short of the projected $2.76 per share. CEO Doug McMillon previously highlighted worries about consumer confidence, noting that budget-constrained customers were cutting back on spending. American Eagle reported being affected by the slowdown in consumer spending and estimated an economic impact of $5 million to $10 million from tariffs on China for the fiscal year. CEO Jay Schottenstein attributed declining demand to fears about the future, citing uncertainties surrounding tariffs, inflation, and government actions. This information was originally published on Fortune.com.
