Retail’s Perfect Storm May Be Brewing as Consumer Outlook on Jobs and Inflation Darkens

Airlines and some of the largest commerce firms are cutting guidance for the current quarter as consumers pull back at the register and on travel booking sites.

There are signs the pullback may be sharpened, at least over the near term.

Consumers are souring on their job prospects, and their expectations about inflation are worsening. For merchants, that means a perfect storm is brewing. Their own costs are rising, their ability to pass those costs along (in the form of higher prices) will be truncated, and gauging customer demand will be difficult at best and impossible at worst. Through it all, the consumer pullback looks likely to widen beyond booking trips or shopping at big-box retailers.

According to preliminary data, consumer sentiment slipped by double digits month over month in March and is roughly 27% lower from March of last year, the University of Michigan said in a Friday (March 14) press release. Year-ahead expectations for inflation leaped from 4.3% last month to 4.9% this month, which was the highest reading since November 2022 and marked three consecutive months of increases of 0.5 percentage points or more.

A slide in sentiment for present and future conditions was consistent “across all groups by age, education, income, wealth, political affiliations and geographic regions,” Surveys of Consumers Director Joanne Hsu said in the release.

“Many consumers cited the high level of uncertainty around policy and other economic factors,” she said in the release.

To get a sense of how sharp the turn has been, consider that sentiment has fallen for three consecutive months and is down 22% from December. If the March reading released Friday holds up in subsequent reports (and if it does not decline further), the report would be the lowest since November 2022. It would also constitute the steepest cumulative decline in sentiment for the first quarter following a presidential election in the 21st century.

The sub-index that logs the expectations for the future deteriorated 15% and includes multiple facets of the economy, like personal finances, labor markets, inflation, business conditions and stock markets. Economic expectations about the future declined 30% and reached a 22-month low. Assessment of current economic conditions decreased 3% and stood 23% lower than a year ago.

Even discount merchants have reported the strain. Dollar General became one of the latest firms to weigh in on the tightening of consumers’ wallets during its fourth-quarter earnings report Thursday (March 13).

“Our customers continue to report that their financial situation has worsened over the last year, as they have been negatively impacted by ongoing inflation,” Todd Vasos, CEO of the discount retailer, said during an earnings call. “Many of our customers report that they only have enough money for basic essentials, with some noting that they have had to sacrifice even on the necessities.”

Consumer spending is the driver of the economy, and retail spending has dipped. The unemployment rate ticked up by 0.1% to 4.1% in the most recent report released March 7.

In her most recent column, Karen Webster wrote: “It’s been 15 years since the U.S. experienced a great recession, even though there was a slight dip in 2020 owing to the COVID shutdown. Today’s environment of economic uncertainty and rising prices, the threat of tariffs and the current administration’s hints at a likely recession have significant implications for all consumers and how they will spend their paychecks in the weeks and months ahead.”

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