Consumer data paints a sour spending picture

You know the world is moving fast when an economist calls January—a mere two months ago—“ancient history.”

But the phrasing feels about right. On March 13, the Commerce Department’s Bureau of Economic Analysis released its January consumer spending report, which was initially scheduled for a February release but was delayed due to the 2025 government shutdown.

Rather than disregard the data for its tardiness, think of it as a telling dispatch from a bygone era. How were consumers spending before the war in Iran broke out? Pretty cautiously.

US consumer spending, which represents about two-thirds of economic activity, ticked up slightly in January, rising 0.4% from December. Meanwhile, inflation-adjusted consumer spending increased just 0.1% for the month.

“Health care, housing and insurance were top categories for spending in January,” Heather Long, chief economist at Navy Federal Credit Union, said in a note, per Bloomberg. “Of course, all of this is ancient history now.”

More recent. But we also got a more up-to-date snapshot of the US consumer on Friday, thanks to a preliminary reading from University of Michigan’s closely watched consumer sentiment survey.

And if consumers weren’t feeling super spend-y in January, that’s unlikely to change anytime soon. Michigan’s consumer sentiment index dipped 1.9% to 55.5 this month, per U of M’s preliminary reading. That marked the lowest reading of the year, according to Joanne Hsu, the survey’s director.

“Consumer sentiment remains soft, but consumers are still digging deep and are spending more,” Neil Saunders, managing director of GlobalData, told CFO Brew over email. “That said, some of the increases are down to inflation rather than people buying more, which means underlying volume growth remains weak.”

And keep in mind: The sour outlook seen in Michigan’s preliminary reading is likely to continue, as consumers increasingly feel the pinch from higher prices at the gas pump as the war in Iran sends oil prices up.

U of M conducted the interviews of consumers “between February 17 and March 9, with about half completed after the start of the US military conflict in Iran,” Hsu noted.

“Interviews completed prior to the military action in Iran showed an improvement in sentiment from last month, but lower readings seen during the nine days thereafter completely erased those initial gains,” she said. “Gasoline prices have exerted the most immediate impact felt by consumers, though the magnitude of passthrough to other prices remains highly uncertain.”

And where consumer sentiment (and spending) goes from here is anyone’s guess.

“The full impact on the US economy and financial markets from the Iranian conflict remains highly fluid and uncertain,” Kathy Bostjancic, chief economist at Nationwide, said in an analyst note, per CNN. “The longer the conflict and disruptions persist, the larger the possible negative hit to business and consumer confidence from increased uncertainty that would inflict further drag on economic activity.”