The Conference Board analysis suggests consumer spending likely declined in Q1 2025, marking the first contraction since the pandemic. After a 4% increase in Q4 2024, inflation-adjusted consumption is estimated to have fallen at an annualized rate of 0.2 percent. The shift signals mounting financial pressure on U.S. households as prices continue to rise and confidence erodes. In February, consumer spending rose just 0.1 percent, missing expectations. Simultaneously, the core personal consumption expenditures (PCE) price index excluding food and energy accelerated to an annual rate of 2.8%, up from 2.6% in January. The core PCE is the Federal Reserve’s preferred inflation gauge and remains above its 2% target. Yelena Shulyatyeva, Senior U.S. Economist at the Conference Board, warned that rising tariffs and inflation expectations could drive prices even higher.
Furthermore, consumer behavior has already begun to shift. Many households have stockpiled goods in anticipation of new import duties while cutting back on dining and discretionary purchases. Expected tariffs on steel, autos, aluminum, and other imports from major trade partners including China, Canada, and the EU are likely to add further strain. Additionally, these developments are reshaping consumer expectations and behavior, pushing spending habits toward essentials and away from services. The Conference Board anticipates that weakening growth will eventually outweigh inflation concerns, prompting the Fed to reduce interest rates in the second half of 2025. The Fed has already downgraded its 2025 growth forecast from 2.1% to 1.7%. Consumer sentiment remains fragile. As prices remain elevated and growth cools, more households are choosing to save, reinforcing a cautious economic outlook.
