The data: US consumer spending rose just 1.8% YoY in Q1—a steep drop from 4.0% in Q4, per the US Commerce Department. Goods spending slowed even more dramatically, rising just 0.5% YoY compared to 6.2% the prior quarter.

• The pullback stemmed from a mix of short-term disruptions and longer-term structural factors. Winter storms and California wildfires disrupted economic activity in January. But the more enduring impact came from a sudden shift in consumer behavior amid rising costs and growing uncertainty tied to the Trump administration’s tariff-centric economic agenda (To keep track of the latest shifts, check out our Live FAQ: The Impact of Trump’s Tariffs on Consumers, Businesses, and Trade).
• The US economy contracted at an annualized rate of 0.3% in Q1—the first decline in three years. However, that headline figure masks important context: A 50.9% surge in imports, fueled by businesses rushing to stockpile goods ahead of looming tariff hikes, shaved roughly 5 percentage points off GDP. At the same time, job and program cuts by the Department of Government Efficiency reduced federal spending, further dragging down public sector output.

Important context: These numbers reflect activity from January through March—before the White House imposed a 10% universal tariff on dozens of trading partners and floated (then paused) a steeper “reciprocal tariff” regime. They also predate the full escalation of the US–China trade war, which now includes a 145% tariff on most Chinese imports.

Warning signs: Q1 may prove to be a high-water mark as several early indicators point to growing strain across the economy:

• Labor market softening: Job openings fell to 7.2 million in March, well below expectations and down 11.9% YoY. Private sector job gains in April came in at just 62,000—about half of projections and the weakest since July, per ADP.
• Inflation heating up: The PCE Price Index rose 3.6% YoY in Q1 (or 3.5% after excluding food and energy), up from 2.4% in Q4—well above the Fed’s 2% target. Tariff-driven price hikes from companies like Stanley Black & Decker, Anker, Shein, and Temu could push that number even higher in the months ahead.
• Consumer sentiment slipping: Confidence fell for the fifth-straight month in April, reaching levels last seen during the early days of the COVID-19 pandemic, per the Conference Board.

Our take: While US retailers entered the year on relatively solid footing following a strong holiday season, they’ve quickly found themselves on shaky ground. The chaotic and fast-changing nature of the Trump administration’s policies has made medium-term planning difficult—and long-term planning nearly impossible.

At the same time, consumers are growing increasingly cautious—even before the full impact of tariff-related price hikes sets in. As confidence in the economy slips and personal financial concerns rise, shoppers are becoming more deliberate with their spending—tightening budgets, scaling back on nonessentials, and focusing more on saving.

Go further: Read our reports “Impact of Tariffs on US Businesses” and “The First 100 Days of Trump.”