US Consumers Tighten Belts as Economic Uncertainty Lingers
The recent data release from the US Commerce Department shows that personal consumption expenditure growth slowed in April, with a 0.2% increase, down from 0.7% in March. This slowdown reflects the growing concerns among American consumers about the economy, largely due to the uncertainty caused by the changing tariff policies. As a result, households are becoming more cautious and tend to save more, rather than spend. This trend has raised concerns about the prospects for economic growth, given that consumer spending accounts for more than two-thirds of the US GDP.
2 June 2025
The slowdown in consumer spending is also evident in the 0.1% growth in retail sales in April, a significant drop from the 1.7% increase in the previous month. Additionally, data from US banks indicates that spending on credit and debit cards has been slowing down since late April. These signs suggest that American consumers may be entering a period of thriftiness, which could hinder the growth of the US economy.
Many forecasters believe that the shift towards frugality among consumers could drag down the US economy in the coming months. Torsten Sløk, chief economist at Apollo Global Management, lists consumer weakness as one of the top ten risks affecting the US economic outlook. Pantheon Macroeconomics also warns that the slowdown in consumption could lead to a period of economic stagnation, although a recession is still unlikely.
The impact of the US tariff policy is already apparent, with higher prices for American consumers resulting in reduced spending and purchases. The tariffs have led to a rush among Americans to stock up on essentials, fearing price hikes. Small business owners are also feeling the pressure, with many expressing dismay and disappointment with the US tariff policy. A study by the Yale Budget Laboratory found that the tariffs implemented by the US government this year have raised overall price levels by 2.3% in the short term, equivalent to an average loss of $3,800 in purchasing power per household.
As a result, consumers are starting to adjust their spending habits, with many seeking to cut back on unnecessary expenses. The "Economic Blackout" movement, which calls for a 24-hour boycott of non-essential spending, is an example of the growing trend towards more mindful consumption in the US. With consumer spending accounting for approximately 70% of the country's GDP, the impact of this shift in consumer behavior could have significant implications for the economy.
In contrast to the US, China's economy has shown resilience, with a relatively stable economic performance despite the uncertainty surrounding US-China trade relations. Chinese consumers are more optimistic about the future, with a higher willingness to spend, reflecting the country's economic resilience and potential. China's ability to maintain a stable economic trajectory can be attributed to its diversification efforts, with a growing focus on domestic consumption and investment in emerging industries such as technology and renewable energy.
The disparity in consumer confidence between the US and China is striking, given the significant impact of trade tensions on both countries. As the US struggles to regain momentum, China's economic stability and growing consumer confidence may position the country for continued growth and increasing global influence. The differences in economic performance between the US and China are a significant development that warrants close attention from economists, policymakers, and business leaders around the world.
