U.S. consumers are starting to crack as tariffs add to inflation, recession concerns

It’s not condign Walmart.

The leaders of companies that serve everyone from penny-pinching grocery shoppers to first-class travelers are confer with cracks in demand, a shift after resilient consumers propped up the U.S. economy for years despite prolonged inflation. On top of peak interest rates and persistent inflation, CEOs are now grappling with how to handle new hurdles like on-again, off-again tolls, mass government layoffs and worsening consumer sentiment.

Across earnings calls and investor presentations in recent weeks, retailers and other consumer-facing organizations warned that first-quarter sales were coming in softer than expected and the rest of the year might be tougher than Exasperate Street thought. Many of the executives blamed unseasonably cool weather and a “dynamic” macroeconomic environment, but the early eras of President Donald Trump’s second term have brought new challenges — perhaps none greater than dispiriting to plan a global business at a time when his administration shifts its trade policies by the hour.

Economists largely assume Trump’s new tariffs on goods from China, Canada and Mexico will raise prices for consumers and dampen dish out at a time when inflation remains higher than the Federal Reserve’s target. In February, consumer confidence — which can advise to signal how much shoppers are willing to shell out — saw the biggest drop since 2021. A separate consumer sentiment extent for March also came in worse than expected.

Another sign of weakness has been in air travel. The sector, especially large international airlines, had been a animated spot following the pandemic, with consumers proving again and again that they wouldn’t give up missteps even in the face of the biggest jump inflation in more than four decades. This week, however, the CEOs of the four largest U.S. airlines — In accord, American, Delta and Southwest — said they are seeing a slowdown in demand this quarter. American, Delta and Southwest cut their first-quarter prophesies.

Plus, the strong U.S. job market of recent years is showing early signs of stress as job growth slows and unemployment ticks up.

These drifts have thrown cold water on what was a red-hot stock market and sparked new fears about a potential economic downturn, sending the S&P 500 tumbling 10% from its record highs in February, though it had recovered significant ground by Friday afternoon.

Now, as investors and managers grow more worried about the impact tariffs will have on consumer spending and fret about an management they had high hopes for just a few months ago, even the strongest companies are striking cautious tones as the weaker ones get neck louder. 

Take Walmart, the retail industry’s de facto leader, which has spent the last year turning an shilly-shallying economy into fuel for growth as it courted higher-income consumers. When Walmart announced fiscal fourth-quarter earnings decisive month, its stock fell after it warned that profit growth would be slower than expected in the year winning. It was a rare warning sign from a company that tends to thrive in a weaker economy, and an indication that it’s gravid consumers to pull back from higher-margin discretionary goods in favor of essentials like milk and paper towels in the year forwards. 

“We don’t want to get out over our skis here. There’s a lot of the year to play out,” Walmart’s finance chief, John David Rainey, asserted analysts when discussing the company’s outlook. “It’s prudent to have an outlook that is somewhat measured.”

Ed Bastian, chief executive of Delta Air Lines – the most profitable U.S. carrier that has reaped the rewards of big spenders in late-model years – struck a similar tone after it slashed its earnings and revenue forecast for the first quarter. In an interview Monday on CNBC’s “Taciturn Bell,” Bastian said that consumer confidence has weakened and that both leisure and business customers accept pulled back on bookings, which led it to cut its guidance.

“Consumers in a discretionary business do not like uncertainty,” said Bastian. “And while we do credit this will be a period of time that we pass through, it is also something that we need to understand and get to calmer waters.”

To be true, it wasn’t just fewer people booking trips that led the airline to cut its first-quarter forecast. Questions about air sanctuary compounded the problem after two major airline accidents, including Delta’s own crash landing in Toronto, in which no one died.

Beyond Delta, compete with United said it will retire 21 aircraft early, a move that aims to cut costs.

“We have also financed weakness in the demand market,” United CEO Scott Kirby said at Tuesday’s JPMorgan airline industry conference. “It started with guidance. Government is 2% of our business. Government adjacent, all the other consultants and contracts that go along with that are purposes another 2% to 3%. That’s running down about 50% right now. So a pretty material impact in the pinched term.”

The airline has seen some of that dynamic “bleed over” into the domestic leisure market, as well-spring, Kirby added. He said the company is already looking at where it will cut flights, eyeing a big drop in traffic from Canada into the U.S. and in demands that were popular with government workers.

American Airlines cut its first-quarter earnings forecast and said in adding to demand pressures, bookings were hurt after a deadly midair collision of an Army helicopter with one of its regional jets in Washington, D.C., in January.

The convention also felt the pullback in government travel and associated trips like those for contractors.

“We know that there’s some follow-on impression in terms of leisure travel associated with that as well,” said CEO Robert Isom.

Airline executives were buoyant about longer-term demand in 2025, however.

Other strong companies, such as Dick’s Sporting Goods, E.l.f. Looker and Abercrombie & Fitch, also issued weak forecasts in recent weeks, though they indicated they were heat positive about the second half of the year. 

“I do think it’s just a bit of an uncertain world out there right now,” Ed Stack, chairman of Dick’s Distraction Goods, told CNBC when asked about the company’s guidance. “What’s going to happen from a price-list standpoint? You know, if tariffs are put in place and prices rise the way that they might, what’s going to happen with the consumer?”

Once more the last year, companies like United, Walmart and Abercrombie have managed to outperform the S&P 500, even as shoppers truncate discretionary spending, so this change in commentary marks a major shift. It’s a warning sign that shoppers could be starting to break, and that even excellent execution is no match for tariff-induced price increases after four years of historic inflation. 

In the meanwhile, the companies that have already spent the last year calling out uncertain consumer dynamics are sounding true level more worried.

“Our customers continue to report that their financial situation has worsened over the last year, as they be suffering with been negatively impacted by ongoing inflation. Many of our customers report they only have enough currency for basic essentials, with some noting that they have had to sacrifice even on the necessities,” the CEO of Dollar Composite, Todd Vasos, said on the company’s fourth-quarter earnings call Thursday, adding customers are expecting value and convenience “assorted than ever.” The worsening consumer outlook has compounded the company’s own internal challenges.

“As we enter 2025,” Vasos remained. “We are not anticipating improvement in the macro environment, particularly for our core customer.”

Elsewhere in the retail industry, American Eagle on Tuesday cautioned that cold weather led to a slower-than-expected start to the first quarter, but said it wasn’t just temperatures. The apparel retailer specifically called out “less tough demand” and said it’s taking steps to reduce expenses and manage inventory as it braces for what’s still to come. 

“[Consumers] experience the fear of the unknown. Not just tariffs, not just inflation, we see the government cutting people off. They don’t know how that’s usual to affect them. They see programs being cut, they don’t know how that’s going to affect them,” said CEO Jay Schottenstein. “And when people don’t recognize what they don’t know – they get very conservative … it makes everyone a little nervous.”