Recent economic data shows a clear trend of slowing consumer spending in the United States, exacerbating concerns about U.S. economic growth and potentially affecting the global economic outlook.
Sluggish Consumer Growth and Economic Pressure
Data released on Monday indicated that U.S. retail sales growth in February was only 0.2%, far below the market expectation of 0.7%. Consumer caution is becoming evident, with non-essential sales weakening and more funds flowing towards essential goods. Notably, this is the second consecutive month that actual economic data has validated the pessimistic forecast of consumer sentiment indices.
Key factors cooling consumer spending include uncertainty over inflationary pressures, federal government lay-offs, stock market volatility, and the frequently changing tariff policies of the Trump administration. Data show that the U.S. Consumer Confidence Index has declined for three consecutive months, with early March seeing a particularly pronounced drop of 11% from February. While the correlation between consumer confidence and actual spending has been low in recent years, the current decline in consumer sentiment is gradually translating into reduced actual consumption, particularly in the non-essential goods market, which is expected to continue to languish. Fitch Ratings projects that by 2025, consumers will be more cautious and lean towards value-oriented spending decisions.
Revised Economic Growth Expectations, Fed Decisions Under Scrutiny
Consumer spending has been a crucial pillar of the U.S. economy, and the latest data suggests that this year's U.S. economic growth will face increased pressure. Manufacturing is similarly underperforming, with the New York Fed's early March release of the Empire State Manufacturing Index showing a sharp decline, indicating a slowdown in manufacturing activity. Consequently, the Atlanta Fed's GDPNow model has revised its first-quarter economic growth forecast for the U.S. down from -1.6% to -2.1%. The U.S. Bureau of Economic Analysis plans to release preliminary first-quarter GDP data on April 30, and the Federal Reserve will update its economic projections this Wednesday. Investors will closely watch policymakers' latest assessments of the economic outlook.
However, some economists argue that while the U.S. economy is slowing, it is not yet showing signs of a full-blown recession. Richard de Chazal, a macro analyst at William Blair, notes that the U.S. economy has a relatively solid starting point for this slowdown. During the pandemic, most households reduced debt and increased savings, while the labor market remained tight, and household incomes rose. Chazal states: "Although economic growth may further decelerate, as long as there is no severe balance sheet shock, or drastic tightening of fiscal or monetary policy, the likelihood of the U.S. entering a full recession in the short term remains low. However, downside risks are significantly increasing."
Global Economy Faces Chain Reaction
The slowing of U.S. economic growth not only affects domestic markets but also has the potential to impact the global economy. As the saying goes in economic circles, "When the U.S. sneezes, the world catches a cold." The trade policies pursued by the Trump administration, particularly the adjustment of tariffs, could not only suppress global economic growth but also elevate inflation levels.
The report released by the Organisation for Economic Co-operation and Development (OECD) on Monday predicts that due to a slowdown in major economies like the U.S., Brazil, Canada, and Mexico, global economic growth in 2025 will decrease from 3.2% in 2024 to 3.1%, and further down to 3% in 2026. In addition, the organization forecasts a 25% rise in bilateral tariffs between the U.S., Canada, and Mexico in April. Should tariffs be limited to certain goods or increase less than expected, these economies' growth prospects might seem a bit more hopeful, and inflationary pressures could be somewhat eased.
The report emphasizes that rising policy uncertainty will lead businesses and households to delay long-term investment and durable goods consumption decisions, posing a major risk to the global economy. With cooling U.S. consumption, sluggish manufacturing, and increased uncertainty from trade policies, the global economy may face greater challenges in the future.
